Buy or Rent-to-Own: That is the Question
rent-to-own agreement can be a practical way to have furniture
or appliances for a short time without having to buy it - but
is rarely a good deal if used to eventually own the property.
Though the advertised payments are often low, the cost to purchase
an item may be two to three times more expensive than making the
purchase through such traditional means as credit cards, store
charge cards and lay-away plans. When making the decision to use
rent-to-own establishments, many factors should be considered.
understand the payment agreement. Contracts for such plans are
typically weekly or monthly, and can be renewed at the end of
each rental period. After a specific number of payments, you own
the goods outright. Some contracts require an additional (and
often substantial) final payment.
know the interest rate you will be charged. Rent-to-own outlets
routinely charge 200 to 300 percent interest on purchases. Before
you sign, compare contracts from several companies and consider
other alternatives of financing the purchase. The following example
illustrates the difference between buying a $250 DVD player at
a retail store to a rent-to-own store:
Retail Store Credit Card
of Weeks 78 (18 mo.)
of Months 18
Interest Payments $40.06
of Payments $1,014
of Payments $291.06
Percentage Rate 265%
Percentage Rate 19.8%
Dollars Paid to Rent-to-own $722
be clear about the final cost and terms of the contract by asking
the following questions (and getting the answers in writing):
are the total charges over the length of the contract?
is responsible for repairs on the item?
are the penalties for late payments?
the item new or used?
happens if a payment is missed?
are the penalties for canceling the agreement?
be prepared to walk away. If you feel the salesperson is pressuring
you to make a decision, or believe he or she is not being forthright
or honest, let your feet do the talking.