Immediately furnishing a home can be appealing, especially to younger people who are establishing a residence for the first time. The rent-to-own industry claims to give consumers a chance to do just that by offering low weekly payments and forgoing credit checks. Purchasers often find, however, that high interest and added fees can mean paying dearly for the convenience.
How Rent-To-Own Stores Work
In rent-to-own transactions, consumers make weekly or monthly payments on an item. However, the customer doesn’t own the item until after making all payments. If you miss one, the rent-to-own company can take back the merchandise without issuing a refund.
Because the customer isn’t locked into a long-term loan, you can stop making payments on an item at any time. This feature allows you to try something out before buying it, or give it back, if necessary. The rent-to-own industry claims that consumers value the ability to rent merchandise for short periods instead of committing to an outright purchase.
Is “Renting” Merchandise a Good Way to Get What You Need?
Most consumers who use rent-to-own stores are low-income and find it difficult to come up with all of the money needed to pay for things upfront. Very few people intend to give back the merchandise and 70% of consumers purchase their items. This isn’t surprising considering that the things being bought are often durable goods used for daily living, such as furniture, electronics, and vehicles—items that a buyer will need for an extended period.
If you plan to buy necessary items this way, you’ll want to prepare yourself for potential unforeseen drawbacks.
Expect to Pay More for Your Item
You’ll likely have to pay more than an item is worth in exchange for the ability to pay it off over time—and you might not even realize it. A fundamental difference between a traditional lender and a rent-to-own contract is that when you take out a loan from a traditional lender, the lender must tell you the “annual percentage rate,” or how much it will charge you for borrowing the money. This rule doesn’t apply to a rent-to-own store.
In most states, the rent-to-own business doesn’t have to show you the annual percentage rate because such contracts are considered rental agreements, not loans. In fact, some rent-to-own companies have been sued for using deceptive marketing practices and predatory lending.
Also, contract fees can add up over time. A typical contract will last for 12, 18, or 24 months—and additional costs can accumulate rapidly. For instance, you’ll likely pay separate charges for interest, installation, processing, taxes, late payments, collections, and damages. As a result, a television that might cost $250 at a traditional retailer could cost as much as $750 once you make all the payments.
Is the Deal Right For You?
Ultimately, you’ll have to decide whether a rent-to-own deal makes sense in your case. Some questions to ask include:
• How much is the interest rate?
• When will I own the item?
• Is there a penalty for paying off the account ahead of time?
• Will I be charged other fees?
• How many payments will I make?
• Is the item I’m purchasing new or used?
• Who handles repairs during the contract?
• What is the total dollar cost to own the item?
• Do I get a grace period for late payments?
• What happens if I miss a payment?
• Is there a large payment due at the end of the contract (a balloon payment)?
It’s a good idea to check the answers against the agreement to make sure that you understand the amount that you’ll pay for your item.
Alternatives to Rent-to-Own Purchases
Before entering a rent-to-own contract, you might want to consider other ways to get the goods you need at a lower price. Here are a few possibilities.
• Save the weekly fee you’d pay until you have enough money to purchase the goods.
• Find items at thrift stores or on Craigslist.
• Use store financing (it can be cheaper than a rent-to-own contract).
• Put items on a credit card that offers a lower interest rate.
• Put items on layaway.
Questions for Your Attorney
- What information must the store give me before entering into a contract?
- Can I make up missed payments on a rent-to-own contract?
- Do I have to repair the merchandise purchased under a rent-to-own contract?