China’s rent-to-own gadget startups booming as yet another one secures funding

99fenqi, which literally translates to "99 installments", is the latest Chinese startup to join in on the race to sell smartphones, cameras, and laptops on rent-to-own plans. The company secured "tens of millions of yuan" in its series A round over Chinese New Year from unnamed VCs, reports 36kr today.

99fenqi is up against well-funded rivals like Qufenqi, which reportedly raised a US$100 million series C round in December, and Aixuedai, which secured US$40 million in series A funding a month later.

The phrase "rent-to-own" might set off alarms for those familiar with the business model. The rent-to-own industry in the US, for instance, has come under heavy scrutiny for preying on low-income families that can’t always make payments on time. Furniture and TVs are sold far above market price, but in deceptively small weekly installments and with harsh penalties for late payments.

Startups like 99fenqi don’t use such predatory models, however. An 16GB iPhone 6 Plus on the site costs RMB 6,606 after 18 monthly installments, about 10 percent more than what the same phone costs on mainstream ecommerce site JD. That’s a reasonable tradeoff for the customer.

The penalties for late payments aren’t too steep, either. 99fenqi charges a daily fee of one percent of the total remaining amount. Qufenqi’s fee structure is identical to 99fenqi’s, but Aixuedai’s isn’t openly disclosed and might vary depending on the product.

So let’s say you’re about halfway through paying for the iPhone and you’ve got RMB 3,000 left to go. If you’re in between jobs, miss a paycheck, have a costly emergency, or just forget to pay for one month (30 days), it will cost you an extra RMB 900. It’s not cheap, but it’s probably not going to force anyone into abject poverty.

That doesn’t exactly make it the best way to shop, though. Startups like 99fenqi are still targeting low-income individuals – often students with little or no personal income – who can’t afford to buy the phones outright, but will have to pay more in the long run. But 99fenqi and its rivals are fortunately quite transparent. Payment periods and downpayments are flexible, terms are clear, and information on penalties is easy to find.