NEWSLETTERS - Tight lending, economic stimulus could bring more customers to rent-to-own

Tight lending, economic stimulus could benefit rent-to-own

Slumping housing and credit markets helped grind the U.S. economy to a near halt in the final quarter of 2007, according to U.S. Commerce Department data released Thursday, causing consumers and businesses to spend and invest more cautiously.

With flexible terms, return and reinstatement options and no credit checks,  rent-to-own dealers hope credit strapped consumers will come to see rent-to-own as a viable financing option for meeting their needs during times of lean lending.

APRO President Larry Carrico

The Associated Press reports the gross domestic product (GDP) increased only .6 percent from October to December 2007 -- a snail's pace compared to the healthy 4.9 percent pace reported in the prior quarter.

The GDP measures the value of all goods and services produced in the United States and is widely recognized by financial analysts as the best barometer of the country's economic health.

While consumer spending increased 1.9 percent in the fourth quarter -- which marked a slowdown from the third quarter's 2.8 percent growth rate -- experts note the root of the economic malaise is due to more restrained lending.

"The problem is centered in credit markets and the banking system, the basic providers of credit which is the fuel for the economy," said Financial Times analyst John Authers in a CNN interview Thursday. "It doesn't help consumers if they're not lending...logically you would expect the American consumer to spend a lot less."

APRO President Larry Carrico, who owns over 40 Rent One stores in Missouri, Illinois, Arkansas and Indiana, says lack of credit could give consumers an opportunity to take another look at rent-to-own.

John Spangle of Partners Rental Purchase

"As an industry we're perfectly positioned to meet their needs," Carrico said. "For the typical customer, doing a '12-month to own' or '90-day same as cash', you have control over payment options and budget with rent-to-own not available with other options."

Though many of his customers may still have a credit line, Carrico noted they may choose not to use it to acquire appliances, furniture or other basics in order to keep their credit available for emergency situations.

The example makes clear the unique character of the rent-to-own transaction and why it may become an even more desirable choice for consumers during times of decreased borrowing options.

John Spangle of Friendswood, Texas agrees.

Though Spangle, who owns 14 Rent-n-Roll and Partners Rental Purchase stores, said his experience has been somewhat different, the overall effect is that more customers discover rent-to-own when credit is hard to find.

"I've found that customers will use up their available credit first and then they will use us," Spangle said. "If people can't get credit, they don't have a lot of choices. In the past, when credit has gotten tight, our business has gotten better."

Consumer spending accounts for a big share of overall economic activity and thus is a major factor in how the economy fares.

And rent-to-own dealers could see that spending boosted if a recent stimulus package has the intended impact.

A $168 billion economic stimulus package, recently approved by Congress, will provide tax rebates from $600 to $1,200 for some 117 million Americans with the intention of inspiring more consumer spending.

Shannon Strunk of Baber's

The package also includes increases in expensing and depreciation limits that will allow small business owners to immediately deduct the entire cost of certain business investments, such as purchasing new equipment.

For investments that exceed $800,000, the package provides for an immediate deduction of 50 percent of the investment rather than deducting the value over a number of years.

"The stimulus package includes a bonus depreciation that will significantly impact any dealer that is profitable," said Shannon Strunk who co-owns 52 Baber's stores with wife Cynthia. "Dealers will have opportunities to buy additional inventory this year to reduce their taxes which could include opening additional stores which would have a tremendous impact on the business."

See related article for more information on how the economic stimulus package could affect your RTO business.