Rent to own? There are better alternatives
It may work well for someone who needs to furnish an apartment for a short time. Otherwise, think again.
This post comes from Allison Martin at partner site Money Talks News.
"You can take home a brand-new 42-inch flat-screen today for only $25 a week!" Sound familiar?
Looks can be deceiving, especially in the world of rent-to-own, where consumers can end up paying double or triple the normal retail price to purchase goods.
Nevertheless, the industry is going strong, with 4.8 million customers and $8.5 billion in annual revenue in 2012, according to the Association of Progressive Rental Organizations, an industry group.What's the attraction?
Why do people shop at rent-to-own businesses?
- If you have bad credit or no credit, no problem. Approval is practically guaranteed.
- Because most rent-to-own companies don't report to the major credit bureaus, your credit won't be damaged further if you fail to make timely payments or pay at all. On the other hand, a record of timely payments will do absolutely nothing to improve your credit score.
- There's an illusion of affordability. That expensive bedroom set you want seems within your reach when you're looking at only the low monthly payments. Says Credit.com's Gerri Detweiler, "The trap with rent-to-own items is the same trap we fall into with credit cards -- focusing on the minimum payment and not the total cost."
- They offer convenience and flexibility. The approval is usually rapid, and many major rent-to-own outlets deliver. To make the deal even more appealing, they grant you the ability to modify the agreement over the duration of the contract -- but that could come at a cost. If you chose to drag the the payments out, you could be overpaying even more.
The sad reality
In 2011, Consumer Reports conducted an extensive investigation of rent-to-own stores. It said:
Consider the deal for a $612 Toshiba laptop computer we found at one rent-to-own store. It was being offered at $38.99 a week for 48 weeks, for a total of $1,872, excluding sales tax and other charges. That's the same as buying the laptop at the manufacturer's suggested retail price and financing it at an interest rate of 311 percent. You could buy three of the laptops outright for that $1,872.
CNN Money reported last year:
At Buddy's Rents, for example, you can rent-to-own an LG 42-inch plasma TV for as little as $22.99 a week. You can return the TV any time if you don't want to keep it. But in order to own it, you need to make 78 payments or a total of $1,793. That compares to a retail price of $446 on Amazon.com.
This is fairly standard for rent-to-own agreements. In most cases, making enough payments to actually own the item will cost you more than double the amount it would cost to buy it upfront from a traditional retailer.
Last year, Kmart decided it wanted a piece of the rent-to-own pie. Says Bloomberg:
The Lease-to-Own program touts instant gratification -- customers without credit take a product home right away, make biweekly payments, then decide whether to buy out or return the product. A typical deal could turn a $300 television into a $415 purchase.
Rent-to-own may work well for someone who needs to furnish an apartment for a short amount of time. But if you want to buy furniture, electronics and the other items that are often sold at these stores, there are much better alternatives.
And, says CNN Money, the last government study on the issue, from 2000, showed that 70 percent of rent-to-own customers end up buying the items they've taken home from rent-to-own stores.
- Be patient. Save the money you would have paid to the rent-to-own store until you have enough to purchase the item at the regular price.
- Wait for a sale. Better yet, save your money and then purchase the item when it goes on sale.
- Buy refurbished. There's nothing wrong with refurbished items and they come at a greatly discounted price.
- Buy secondhand. Try Craigslist, yard sales, consignment shops or thrift stores. Even if you have to take care of the delivery, you could end up saving a bundle.
- Boost your credit score. If you have to finance the item, take some time to build your credit score and then apply for a credit card with a 0 percent interest introductory offer.
If you go to a rent-to-own store, how can you protect yourself from a really bad deal? A total of 47 states have various consumer protections in place. But take these steps:
- Cash price vs. rental price. Search online for the retail price of the item you are considering renting. Compare that with the total cost at the rent-to-own store, including the monthly payment, down payment and duration of the agreement.
- Read the contract. You need to understand every detail.
- Condition. Is the item at the rent-to-own store new or gently used?
- Hidden fees. Are there any penalties associated with late payments, early returns or premature payoffs?
- Reporting practices. Although it's uncommon, ask if the store reports payments to the three major credit bureaus.
What is your experience with rent-to-own companies? Was it worth it?
More from Money Talks News
I don't get it, and I would rather dig ditches for a living than talk a poor person into something like this. I guess I would never excel as a salesperson in this day and age.
So once you're, say, two years into your contract, you could be stuck with payments on a 5 year old piece of technology that you have no way of upgrading.
-Thinking of just returning it and cancelling your contract, once it begins to slow down and act buggy? The sad truth is that you've been paying so much on it, that it will have been difficult to save any cash for your next computer purchase. And the viscious cycle begins...
Tim from VT got it right, in part. These deals are for two segments of society; those having no education, and the biggest segment, those too lazy to reason things out. Then, there is the added problem of "kids" wanting everything "NOW!," without understanding the actual costs of anything. This includes everything in life.
Too many in today's world are not willing to wait, or even try, to actually earn enough money, and when they see our national leaders doing the same thing, buying tomorrow with no thought, concern, or money today, and no thought of the actual consequences, where is the impetus for "personal responsibility."
You Can Rent To Own Your Old House Back!
Entrepreneurs in the area are doing rent to own homes that have been foreclosed on and fixed up a little.
Nothing Ethical, Just Pure Old Greed!
oh and you could get credit by going to bank and getting a special prepaid card where you pay it off each month (its all your money though) and after a year or so , they say TA DAHHH, you can have a credit card with $500 limit......
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