SALT LAKE CITY — Kmart has recently jumped into a new line of business. The discounter now offers a rent-to-own option.
Rent-to-own allows shoppers to receive an item, even if they can't pay for it. But this might not be such a sweet deal.
Kmart offers some 600,000 items — including TVs, sporting goods, and toys — under its new program. Shoppers make the first payment at the store. The balance plus interest is automatically withdrawn from the buyer's bank account every two weeks or on a monthly basis for up to 18 months.
"It's an indicator we have a high tolerance for debt in our society today," said Will VanderToolen, director of counseling services at Utah AAA Fair Credit Foundation.
VanderToolen is not a fan of Kmart's new program. He said some people will opt for it because they're not focused on total cost.
"They're not thinking about the interest rate. They see the monthly payment and it looks affordable," he pointed out.
So what is the total cost? Using Kmart's numbers, if you brought home a $400 TV, after five months of paying $33 every two weeks, you will have paid $333. To make that TV finally all yours, you'll have to make a big balloon payment of $220.
Total cost: $553. That's $153 more than the cash price.
They're not thinking about the interest rate. They see the monthly payment and it looks affordable.
"If they did not have the cash to buy the item upfront, it's possible they won't have the money saved to pay the balloon payment at the end of that 18 month period as well," VanderToolen said.
Kmart and its owner, Sears, says its providing options to shoppers who don't have access to credit.
VanderToolen says layaway is a better option. Kmart charges $5 for an eight-week layaway contract, and there is no interest. Of course, consumers must wait until it's paid for before they can take an item home. For some, that's not easy.
"They want the item right now," he said. "They want to have that in their possession. They want to be able to use it themselves and allow their kids to use it immediately, to put it under the Christmas tree right now," he said.
That's why VanderToolen believes other retailers will follow Kmart into the rent-to-own business.