The High Cost of Rent to Own
How Do Rent-to-Own Plans Work?
The concept of rent to own can be very appealing to people with low credit scores and who are short on cash but wish to purchase new electronics, appliances, or furniture. Rent to own stores make it possible to own items that you may not otherwise be able to afford. Because you don’t have to pass a credit check, and because there is usually no large deposit required, renting to own seems like a winning combination, but in the end, the cost is greater than you may realize.
Fees For Rent To Own Items Are Endless –
Since renting to own does not involve a line of credit, there are no regulations on the exorbitant fees that you will inevitably end up paying that are well over the true cost of the item. Financially, renting to own makes no sense and ends up being far more expensive than traditional methods of purchase.
For example, say you rent a computer from a rent to own company. You will pay somewhere around $29.99 a week for, say, 52 weeks before the computer is now yours. At this rate, you will have spent $1,559.48 on a computer that other stores are retailing at $600. With the expenses you will end up paying out of pocket, you could have purchased two computers for the price of one at a rent to own store. Even by saving just $30 a week, you could purchase that same computer from a retail electronics store in just 5 months and save yourself over $900 in the process.
There are also additional fees that will be laid out in the contract that you sign. Some of those fees may include: processing fees, delivery and pick-up fees, set-up or installation fees, in-home collection fees, state sales tax, excessive damage fees, reinstatement fees, late payment fees, and more. If you sign up for rent-to-own, make sure you read that fine print and read the entire contract before signing anything.
Possible Alternatives –
When it comes to buying items for your home or apartment, you may have more options than you realize. Here are a few other possibilities:
- Find out whether or not you qualify for financing. Many stores offer a 60 or even 90 no-payment period offer. Some stores offer 0% financing for a specific time period. But in both offers, the interest will eventually accrue. For the no-payment period offer, you usually have to pay the interest sooner or later. For the 0% financing offers, you can avoid the interest if you make monthly payments that will pay off the item by the end of the 0% time period.
- Consider utilizing a layaway option. When you use layaway, you typically put down a deposit — usually a small percentage of the total purchase price — and pay over time; the retailer holds the merchandise for you in reserve. You take ownership of it only when you have paid for the item in full. The merchandise may be held in the store or off-site, so there may be a short period between your final payment and when you actually acquire the item.
- Start a dedicated interest-bearing savings account. Take the same amount that you would pay a rental company each month and put that money into an interest-bearing savings account instead. You’ll end up owning the item sooner, pay far less for it, and maybe earn a little interest all at the same time.
- Buy secondhand, refurbished, or reconditioned items. They come at a greatly discounted price. Check out online lists and forums, classified ads, yard sales, auctions, consignment shops or thrift stores.
- See if your credit union or bank offers personal loans with low-interest rates. If you can get one, that might be less expensive than either renting or using your credit card.
Even High-Interest Credit Cards Are Usually Cheaper –
Though it is almost never advisable to make a big ticket item purchase using a high-interest rate credit card even that is financially a better option than renting to own. With interest rates in the triple digits, even a credit card with an interest rate of 29 percent will cost you far less than going through a rent to own process. You will always be better off making your purchases through other means rather than renting to own.
Is Rent To Own A Good Idea? –
Rent-to-own may work if you have a short-term need, or want to try a product before buying it. For example, your washer breaks the day before relatives visit and you need time to do research on sales. Or maybe you need furniture on a short-term basis for a temporary residence, or your kids need musical instruments for a class at school. Most of the time it’s just not a great idea and should probably be avoided.
Learn What You Can Afford –
If you have poor credit or are low on funds but you need to purchase new electronics or furniture, contact Advantage CCS. Through free credit counseling and budget management, the professionals at Advantage CCS can work with you to get an understanding of your current financial situation. They can teach you how to budget so that you can set aside money to purchase items you need for your home rather than getting caught in a very expensive trap of rent-to-own.