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The true cost of using rent-to-own stores

Rent-to-own may not be as great a deal as you think.

When you have bad credit or no room in your budget for savings, buying something new — like furniture or a computer — can be difficult. A rent-to-own store in your area might offer what looks like pretty amazing deals, but look closely at the costs. It’s often much more expensive than the retailer would have you believe.

How do rent-to-own stores work?

Rent-to-own stores are a way to get new furniture or appliances without waiting days or weeks to save up enough money to buy it outright. Rent-to-own isn’t a loan, so your credit score doesn’t matter, but it’s an expensive way to buy new items.
A rent-to-own store gives you two options: Either you buy your item through regular weekly payments, or you lease an item and return it at the end of the rental period. Both options allow you to return an item when you no longer want to make payments, even if your contract isn’t finished.

Leasing an item

Rent-to-own stores also allow you to lease an item. Make monthly payments and then return the item once you’re finished using it. This is a good option if you know you’ll only be using the item for a little while. For instance, if you’re moving to a new country and only need a couch for a month, you can lease one for much less than the cost of buying it outright.

Buying an item over installments

If you want to keep your purchase but don’t have the money to pay it off with one large lump sum, keep making payments — usually over one to two years — and eventually pay for your purchase. This is where the term rent-to-own comes from. You keep paying weekly or monthly installments until you’ve bought out your contract.
If you no longer want the item or can’t continue making regular payments, most stores have lenient return policies. And some stores even let you pick up payments from where you left them if you want to resume your contract.

Buying an item outright

Most stores give you the option of paying off your lease early and buying the item outright. Though this lowers the cost significantly and means you own you’re items faster, compare other prices when choosing this option. If you can save up the amount you need, it’s likely you’ll find a better price elsewhere.

Is a rent-to-own home the same?

While rent-to-own home contracts are similar to rent-to-own items, the process is generally more complex. If you want to rent-to-own a home, you’ll need to contact the seller first and find an attorney who deals in real estate. You’ll need to draw up a contract that benefits both the seller and buyer, and outlines who is responsible for repairs, major expenses and how long the leasing period lasts.
Buyers need to pay an option fee on top of rent. This gives you first choice to buy the house — meaning the owner can’t sell it to anyone else while you’re renting. You aren’t obligated to buy the house, but the option fee protects you in case you do decide to buy once you’re through renting.
Another difference between a rent-to-own home and a rent-to-own item is the credit check. While you don’t need the best credit to purchase a home this way — in fact, this is an option for people without great credit — you’ll still be subject to a credit check. The price is subject to negotiation, and you’ll want to specify that a portion of your rent is going toward a down payment.
Be sure to find a professional who deals in this field before you make a decision. It could be the difference between getting a good deal and ending up paying extra rent for nothing.

How much does getting a rent-to-own item cost?

What you’re buying, the total number of payments and if you can buy the item ahead of schedule all impact the final price of an item. Look at the terms of your leasing contract to see how much your item will actually cost you. The weekly payments might look low, but they add up quickly and often cause you to pay much more than something is worth.
You may also be charged additional fees that aren’t factored into the total price of an item — such as include delivery, repair and installation fees. If you make a late payment, you’ll have to pay a fee for that, and if you miss too many, the store may repossess the item and charge you a collection fee.

Here are two examples of what you might buy and the potential cost to you.

New refrigerator
Say your refrigerator stops running, and you don’t have a credit card to buy a new one. Your local rent-to-own store has a decent one for sale. It’s nothing fancy, but it can be delivered quickly. You won’t have to put anything down, and they don’t need your credit score for approval.
You buy the item on a weekly payment plan, paying $27 per week. You’re informed if you buy it outright within 90 days, the total purchase cost will be around $925. However, the way the $27 weekly payments are set up, you’ll end up paying about $2,083. That’s $1,157 more than the ticket price of the refrigerator.
New TV
A new TV costs $935 at your local rent-to-own store, but you can bring it home today by agreeing to pay $20 a week for the next year and a half. You’ll be moving in a month and don’t want to commit to an expense that might break on the journey, so you agree to the contract and have it delivered to your apartment.
If you kept the TV for the full lease, you’d end up paying around $1,559 — a good chunk more than the TV is actually worth. Since you’re moving in 4 weeks, you’d only have to pay $80 if you decide to return it when you get to your new place. While it may not be the best way to buy furniture, the leasing process can be helpful with the right conditions.

Is rent-to-own right for me?

You may want to consider rent-to-own if you:

  • Have bad credit. A rent-to-own store may conduct a credit check to confirm your identity, but most don’t rely on your credit score for approval because rent-to-own deals are payment plans — and the object you’re buying is used as collateral. Unlike with loans, your credit doesn’t determine your weekly payment or the interest you get.
  • Need instant access to an item. Unlike putting something on layaway, rent-to-own gives you immediate access to household goods. Rather than saving up to buy a piece of furniture, for instance, you’ll only have to wait the few days it takes it to be delivered.
  • Don’t want a commitment. When you get something from a rent-to-own store, you’re not committed to buy the item. Stores have different payment methods that allow you to buy the item right away, have a 60- or 90-day payment plan with no interest or rent until you’re ready to buy.

A rent-to-own deal might not be good for you if:

  • You don’t want weekly payments. Small weekly payments are the norm with rent-to-own stores. Expect to pay anywhere from $20 to $50 a week when you buy an expensive piece of furniture, and these contracts can last years.
  • You’re concerned about cost. Although the weekly payments are low, rent-to-own goods often end up costing much more in the long run than the item itself. These businesses charge exuberant interest rates, so if you can wait to buy that new couch or TV and can put it on layaway instead, you should.
  • The store is disreputable. Many rent-to-own stores have come under fire recently because they use deceptive tactics and attempt to trick customers. Some stores have even been found to use outdated software and not log customers’ payments. Before you sign an agreement, check online reviews to see if the store you’re working with is reputable.

Questions to ask before you buy or lease

The Federal Trade Commission lists questions you should ask your retailer before you decide to make a big purchase or sign a rental contract.
First, you should ask how much your payment is and when it’s due. Does this include all service fees charged, or will there be an additional number that needs to be added to the payment?
It’s a good idea to find out what the total dollar cost is to own the item and at what point you own it. Then there’s the product itself: Is it new or used? Who’s responsible for loss or damage to the item, and who repairs it if it breaks down?
And finally, you should ask about late payments. Is there a grace period? What happens if you miss a payment? Is the property returned or repossessed? These are all things to consider before buying any product.

Rent-to-own vs. short-term loans

Rent-to-own takes very little time and can allow you to purchase something nice without having to have money down. At the end of the leasing term, you’ll likely end up having paid 400% or more in interest — the same as other short-term loans. If you’re considering alternatives, a short-term loan could be an option.
Depending on your state of residence, a payday loan can get you similar amounts with similar interest charges. If you need more time or the item you want costs more money, installment loans offer longer terms to pay back the loan. These aren’t the cheapest options, but they give you more to work with and don’t come with the risk of repossession.
Understand what each loan costs and know the laws of your state before you decide.

How it worksRepayment processOwnership of item
Rent-to-ownLease an item for an agreed-upon timeframe or buy it outrightWeekly paymentsLease until fully paid for
Payday loansTake out a small-dollar loan, usually less than $500Lump sum payment on next paydayYou own the purchased item
Installment loansTake out a larger loan, usually between $500 – $5,000Monthly paymentsYou own the purchased item

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More alternatives to consider

If you’re worried about the costs of rent-to-own stores but don’t have a way to save to purchase an item outright, there are some alternatives to consider that might be able to save you money in the long run.

  • Retailer financing. Some traditional retailers have financing available, even if you have bad credit. Talk with a salesperson to find an option that helps you avoid the high costs of a rent-to-own store.
  • Personal loans for bad credit. These loans can help you finance a large purchase and has lower interest rates than a rent-to-own store or an installment loan.
  • Layaway. If you’re looking at furniture in a store that offers layaway, consider taking advantage of it. While you won’t get your new purchase right away, you pay the exact price and won’t have to worry about your item being repossessed if you fail to make a payment.
  • Secondhand purchases. While not brand-new, a secondhand set of furniture or a gently used appliance can be a good addition to your household while you’re trying to save money. Check out thrift stores and online lists to find something cheap and effective.

Bottom line

When you’re looking for a new piece of furniture, appliance or electronic item and have bad credit, it can be difficult to find something cheap. Rent-to-own stores provide a way to get access to higher-priced items you may not have had all the cash to pay for outright.
Although rent-to-own stores promise low prices, be sure you know the total costs on top of the initial price of your purchase. You may want to compare your options, make a budget and figure out an exact plan before you dive into a huge commitment.

Frequently asked questions

Can getting a rent-to-own item help build my credit?
If the business you’re leasing from reports to a credit agency, then yes. Making timely payments is a good way to help build your credit score. At the end of the rental period — whether or not you choose to buy — your contract will be reported and your payments will be reflected on your credit report. Not all stores do this, however, so you’ll want to confirm they report before you sign.
Another way to build your credit might be to get a secured credit card. You set your own credit limit, and as you make small purchases and pay them off, you’ll work on improving your credit score so you can get financing in the future.
What should I do if I’m behind on payments?
You’ll want to contact your local store as soon as possible. Most places are understanding of late payments due to financial problems, and if you’re upfront about a problem, you may be able to work out a solution that benefits you and keeps your debts down.
How come the final price is so high?
Because many people think rent-to-own stores are their only option to get decent furniture, these stores tend to gouge customers. This tactic is why many companies have come under fire recently and why we suggest you compare all your options before deciding on something that may end up costing you hundreds or thousands of dollars in the long run.

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