Re: Rent to Own Tuba? Or Not?


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Posted by Rick Denney on January 17, 2002 at 12:02:47:

In Reply to: Rent to Own Tuba? Or Not? posted by Max Mearse on January 16, 2002 at 17:10:54:

Stated up front: I don't disagree with anything that has been said.

But I have bought an instrument on time with the note carried by the previous owner, and I'm in the process of selling one like that.

In both cases, it has nothing to do with renting. It is the seller loaning money to the buyer to finance the purchase. There is a down payment, and there are monthly payments, interest, and a signed, written agreement.

If the tuba itself is to be the collateral on the loan, then make sure that the remaining principle on the note is ALWAYS less than the value of the horn, even if it gets damaged. That means you can at least recover what is still owed you if you have to repossess the instrument. For a tuba, that usually means a substantial down payment--enough to cover an econo-overhaul plus the costs of repossessing it (including any hiring of the goon squad--i.e. court costs).

A loan is legally different from renting. You don't need a business license or anything like that to loan your own money to someone, and even sales tax is not required in most states for "occasional" personal sales (check with your state comptroller's office). You may need a license to rent something to someone, and you almost always need a license to loan somebody else's money (i.e. if you are a bank).

A loan is also enforceable in court, separately from the instrument. You can even write the agreement so that if a payment is missed, all the following payments are collapsed to the present and due at once. But to be enforceable in court, you need a reasonable and clear written agreement, and you need the signature of a responsible borrower. That means the high-school kid's parents, not a minor high-school kid with no credit history. And you should realise that enforcing the loan in court may cost more than the tuba, so you need to make sure the people you are loaning the money to have the ability to pay you (which means you should check their credit). If the nearest willing worthy borrower is the student's teacher, then you should get his co-signature, and make him understand that he will be responsible for the full amount if the kid or his parents default.

In both the cases that involved me, the other party was clearly a grownup, with a long history (on this board, for example) whose reputation was worth something and would be vulnerable to attack if they default. (This applied also to me as the buyer).

I started this post with a general agreement with the others that this is opening a can of worms for you, and I'll say it again. You are taking a big risk. But it's your's to take.

Another option that removes this risk is a layaway plan. Let the student pay you money at a steady and agreed rate. When you have acquired enough to manage your risk, which includes the student proving his reliability enough to give you confidence in his willingness and ability to pay, then and only then will you turn the horn over to him. This confidence may not come until it is entirely paid for (as with most store layaways), but that's up to you. The student will have to make do with school instruments until he has finished paying for the instrument. It will be a good test of the student's long-range goal-setting and follow-through.

Rick "who says NO to rent-to-own, MAYBE to loan, and YES to layaway" Denney


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