Rent-to-Own Versus Cash and Deferred Interest
The Ortega household has take-home pay of $3,150 per month. Fixed expenses are rent $1,050, car payment $310, utilities $260, childcare $420, and minimum credit-card payments $180. They spend about $520 on food and usually save $75. Their credit card balance is $900 at 24.99% APR, and their savings account holds $600. The 12-year-old washing machine has flooded twice. Three options are on the table: rent-to-own at $129 per month for 18 months plus a $35 delivery fee, with ownership after the last payment; a used pair from a reputable refurbisher for $450 cash with a 90-day warranty; or a new pair for $1,080 plus $90 delivery, financed with a store card at 0% for 12 months, with the balance jumping to 26.99% APR if not paid in full. The family needs a working machine within a week.
1. Calculate the total cost of each option and identify the key non-price risks.
Read the worked answer
Rent-to-own: $129 × 18 = $2,322, plus $35 delivery = $2,357. Ownership comes only after the 18th payment. That is about 5.2 times the $450 used price and roughly twice the new cash price. Used refurbished: $450 cash with a 90-day warranty. New: $1,080 + $90 delivery = $1,170 if paid in full before the 12-month deadline; at $97.50 per month, that is manageable from the $335 monthly surplus, but deferred-interest offers commonly charge interest from the purchase date if any balance remains. Read the agreement for whether interest is retroactive. The key comparison is not the monthly payment but total cost, liquidity, and risk. Rent-to-own has the highest total and a fixed 18-month obligation. The used option has the lowest total but only a 90-day warranty and possible repair risk. The new option has the best warranty but a deadline that can turn into high-interest debt.
2. Recommend one option and justify it using the household's budget, savings, and risk exposure.
Read the worked answer
Recommend the $450 used pair if it can be inspected and the refurbisher is reputable. It preserves $150 of the $600 savings and avoids new debt. The monthly surplus is $335, but it is thin: one car repair or medical bill could wipe out the remaining $150. Rent-to-own is the worst option on total cost and adds a fixed $129 obligation for 18 months; it also carries high effective annual rates and repossession risk. The new 0% option is reasonable only with a written plan: set autopay at $97.50, confirm the exact payoff date and whether interest is retroactive, and keep at least $300 in savings. If the used pair is unavailable within the week, the new pair on 0% is preferable to rent-to-own. Do not put the purchase on the 24.99% credit card. The decision rule is to minimize total cost while preserving an emergency buffer, not to minimize the monthly payment.
3. The used machine fails on day 100. What should the family do, and what does this reveal about consumer decision-making?
Read the worked answer
Day 100 is past the 90-day warranty, so the family should get a written repair estimate before authorizing work. With only $150 left, a $200 repair would force credit-card use at 24.99%. Mitigation: ask whether the refurbisher offers a good-faith repair discount, compare repair cost with replacement, and build savings back to $500 before any discretionary purchase. If they had chosen the new 0% option, they would need a payoff calendar and a rule: if the balance is not on track by month 10, pay it off from savings or renegotiate. The episode shows that the lowest monthly payment can be the most expensive choice, and that an emergency fund is part of the true cost of any purchase. A consumer decision is not complete until the risk of failure is planned for.