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Rent-to-Own Agreements

(Rental-Purchase Agreements)

What is a Rental-Purchase Agreement?

Rental-Purchase stores also known as Rent-to-Own stores rent and sell appliances, furniture and electronic goods to consumers. In a typical Rental-Purchase (i.e., Rent-to-Own) transaction, a consumer agrees to rent something for a week to a month at a time, typically for a term of up to 18 months, at which time the consumer may automatically become the owner of the product. In some agreements there is a single final payment due at the end of the agreement, allowing the consumer to become the outright owner after making the final payment. Consumers use a Rental-Purchase agreement for both of its options (rent or purchase), with many eventually becoming the owner of the merchandise involved.

Why use Rental-Purchase Agreements?

Many consumers choose a Rental-Purchase option because they do not have enough cash to pay for the merchandise involved outright. The Rental-Purchase transaction can be appealing because it allows for a low weekly or monthly payment, no credit checks, and the ability to cancel the transaction at any time, while affording the consumer immediate use of the merchandise involved.

Costs of Rental-Purchase Transactions

Purchasing merchandise from a Rental-Purchase store usually costs more than purchasing the merchandise from a department or appliance store. In reviewing agreements from the industry, the Department of Financial Institutions has found on average this expense to be between two to five times as much. In addition to their scheduled weekly or monthly payments, these stores often have additional charges in the agreements they offer, some of which 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)

Additional Considerations of Rental Purchase Transactions

  • When making rental payments, the consumer in a way is building "equity" in the merchandise being rented. In other words, as the payments are made the consumer gets closer to the point of purchasing the merchandise outright for a lesser amount. If consumers wish to protect their equity, they need to continue making the rental payments on time. Often a late payment by the consumer has the ability to cancel the transaction, which could result in loss of the consumer's equity build up. Some agreements allow for reinstatement by the consumer for the payment of a fee to the company.
    • Rental-Purchase stores handle both new and used merchandise. Be certain you know which type of merchandise you will be renting.
    • Renting merchandise for a short period, such as a week or a month, is not a bad idea. Renting merchandise for longer periods of time is, however, an expensive alternative.
    • Rental-Purchase stores also sell merchandise outright; however, their "cash prices" tend to be higher than some other merchandisers.
    • As with any other agreement, a consumer should read the agreement fully so it is understood in advance of entering into the transaction.

    Rental-Purchase vs. Cash Purchase Comparison

    At a department or appliance store:

    Cash purchase price of a TV = $200.00

    At a Rental-Purchase store, with a weekly payment agreement:

    78 weekly payments of $8.50 = $633.00, plus one additional payment at the end of the agreement of $37.00, for a total cost of $700.00

    Rental-Purchase cost = $700.00 vs. Cash cost = $200.00

    For additional information please visit:

    Department of Financial Services, WWW.WDFI.ORG, Financial Literacy pages