Rent-to-Own

Where does it cost $700 to buy a TV worth only $200? – at a rent-to-own store

What is Rent-to-Own?

Rent-to-own companies rent and sell appliance, furniture and electronic goods to consumers. In a typical rent-to-own transaction a customer agrees to rent something for one week or one month at a time. If the customer rents the product for a specified period of time, commonly 18 months, the customer will become the owner of the product either automatically or by paying an additional payment. Most customers rent-to-own with the intent of eventually becoming the owner of the merchandise and are seldom interested in renting the product for a short period.

Why Rent-to-Own?

Many consumers rent-to-own because they do not have enough cash to pay the full purchase price or cannot obtain financing from the merchant or other sources, such as banks or credit unions. Rent-to-own transactions can also be appealing because they allow a low weekly or monthly payment, no credit checks, the ability to cancel the transaction at any time and provide immediate use of a product. In a consumer culture where instant gratification is the norm, it may be tempting to enter into a rent-to-own transaction.

Rent-to-Own is Very Expensive

Purchasing merchandise from a rent-to-own company usually costs two to five times as much as purchasing the merchandise from a department or appliance store. If the difference between the total payments and the fair market value of the product were expressed as an interest rate, the rate would commonly be over 100%, and at times over 300%. Besides the normal weekly or monthly payments, other fees that may be charged on rent-to-own agreements are:

Processing fees
Delivery fees
Set-up/installation fees
In-home collection fees
Sales tax
Home pick-up fees
Damage waiver fees (similar to property insurance)
Reinstatement fees (charged if a payment is late or missed and the customer wants to continue renting)

Alternatives to Rent-to-Own

If you can do without the product until you save enough money to pay the full purchase price, you will save a lot of money and will actually own the merchandise earlier than what would be possible in a rent-to-own transaction. After saving up the full purchase price look for sales at conventional stores. Garage sales, auctions, second-hand stores and the classified ads are also good places to look for bargains.

Another option would be to try to purchase the merchandise on an installment or layaway plan at another store, or apply for a loan at a lending institution, such as a credit union, loan company or bank. Opening a savings or checking account at the lending institution will increase your chances of having your loan request approved. Making a large down payment will also increase your chances of getting credit.

Purchase Comparison

To purchase a TV you can make:

At a rent-to-own store

78 weekly payments of $8.50 each

plus one additional payment of $37

for a total of $700.

or, At an appliance store

one $200 payment.

The difference between $700 and $200 is what you can save by not purchasing the TV at a rent-to-own store. If you can do without the TV for 24 weeks and save $8.50 each week, you will have enough money at the end of the 24 weeks to purchase the TV at an appliance store.

Other Considerations

When making rental payments you are in a way building "equity" in the rented merchandise. In other words, as you make payments you are getting closer to obtaining the right to purchase the item for a relatively small amount. If you want to protect that equity you must continue to make all rental payments on time. If you are late with a payment the rental agreement can be canceled and your equity is lost. In some cases, you may be able to reinstate the agreement by paying a fee.
Rent-to-own companies handle both new and used merchandise. Be sure you know which type you will be renting.
Renting merchandise for a short period, such as a week or a month, is not a bad deal. Renting for a longer period, however, is very expensive.
Rent-to-own companies also sell merchandise outright, however, their "cash prices" are also significantly higher than prices at department, appliance or discount stores.
As with any contract, a customer should read the contract so it is fully understood.