With rising unemployment and plummeting household incomes, cash strapped Americans are struggling to afford their homes and vehicles. Most do not have enough savings and are living on the verge of bankruptcy from an unexpected expense. Having to get new tires can be that expense for some families. If you need new tires now and don’t have the cash at hand, what can you do?
Since 2006, the average price of a passenger tire has increased over 60%. Stunned by increasing tire prices and low on cash, increasing numbers of Americans are renting tires to keep their cars going. This new tread gets you new tires without putting cash up front or even having your credit checked. This may sound like a great option but these deals come with predatory terms and outrageously high interest rates. They operate more like pawn shops and payday lenders than like banks or credit unions. They target individuals with little or no credit who can’t get a loan anywhere else.
High Interest Charges
One couple in N.C. that decided to rent from Rent-N-Roll, agreed to pay $54.60 a month for 18 months. That comes out to $982.80 for a standard set of Hankook tires. This is almost three times the cost of the same basic tires at Wal-Mart. Another retailer, Rent A Wheel, offered payments of $42.40 a week for 52 weeks. This comes out to over $2.200 instead of $1,102 upfront. Poor families and those going through a rough patch are having to pay two or three times as everyone else.
Lack of Consumer Protection
These schemes also lack the consumer protection that would come with more traditional financing options. The rent-to-own companies are the ones that actually own the tires until the last payment is made. In some states, missing a single payment is considered theft and can result in criminal charges. A family renting tires from a Rent-A-Wheel in Los Angles were visited by police after missing a single weekly payment of $41.90.
Even filing for bankruptcy cannot get the debt discharged. Because the payments are technically rental payments and not debt, they can not be discharged or modified in court.
No Other Option
With poor credit and no cash on hand, paying a premium for rental tires may be a bargain if it means keeping your job. Many families working paycheck to paycheck really have no other option.
In 2016, rent-to-own companies had a total revenue of $8.6 billion. Majority of the revenue comes from electronics and furniture with tires and wheels making up less than 5%. But unlike the La-Z-Boy or xbox, tires are a necessity. Getting tires repossessed could mean not being able to drive to work. That’s a huge hit for families that were already desperate enough to agree to these terms.
To their credit, these companies are doing business with people that no one else will consider. They are taking greater risk than traditional lenders so they also need stricter terms and aggressive repossession tactics.