Rent-to-Own

It sounds like a great deal! Only $8.50 a week for 78 weeks for a brand new television. Who can't afford $8.50 a week for a new TV?

Before you jump at this offer, there are some things that you, the consumer, need to know first. This great offer may actually cost you almost three times more than the price you would pay at a department or appliance store. If you are considering purchasing or renting merchandise through a rent-to-own company make sure you read the following to know if it is a "good deal" for you.

What is Rent-to-Own?

Rent-to-own companies rent and sell appliances, furniture and electronic goods to consumers. In a typical rent-to-own transaction a customer agrees to rent something for a week or a 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 making 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 on hand to pay the full purchase price all at once 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 low weekly or monthly payments, the ability to cancel the transaction at any time and they provide immediate use of a product.

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 was expressed as an interest rate, the rate is commonly 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 include:

• 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 is 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 is to try to purchase the merchandise on an installment or layaway plan at another store, or to apply for a loan at a lending institution, such as a credit union, loan company or bank. Having 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

Take a look at the difference between buying a TV at rent-to-own store, versus a traditional appliance store:

The difference between $700 and $200 is what you 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. In other words, it will take you only six months to own the same product that it takes a year-and-a-half to own through an rent to own purchase.

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 entire contract and make sure it is fully understood.