To Buy or Rent-to-Own: That is the Question

A 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.

First, 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.

Second, 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:

Rent-to-own Purchase
Large Retail Store Credit Card
Amount Financed $250 Amount Financed $250
Weekly Payment $13 Monthly Payment $16
Number of Weeks 78 (18 mo.) Number of Months 18
Finance Charge $764 Total Interest Payments $40.06
Total of Payments $1,014 Total of Payments $291.06
Annual Percentage Rate 265% Annual Percentage Rate 19.8%

Excess Dollars Paid to Rent-to-own $722

Third, be clear about the final cost and terms of the contract by asking the following questions (and getting the answers in writing):

  • What are the total charges over the length of the contract?
  • Who is responsible for repairs on the item?
  • What are the penalties for late payments?
  • Is the item new or used?
  • What happens if a payment is missed?
  • What are the penalties for canceling the agreement?

Finally, 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.