Demand for rent-to-own contracts: a behavioral economic explanation

Rental purchase contracts for consumer durables, often described as 'renting-to-own,' typically require total payments two to four times greater than retail prices. Under such conditions, why do lower income consumers ever select this option? Within several low-income samples we consider liquidity constraints, time preferences and risk attitudes as possible explanations for this demand. Use of these services appears to be a risk-averse response to the income and expense shocks faced by low-income households and a financial management tool to address myopic time preferences. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: D12.