Rent-To-Own
Rent-to-own agreements may be an easy, but expensive way to acquire
furniture, electronic equipment or large appliances. Rent-to-own
contracts are usually weekly or monthly rental agreements that
can be renewed at the end of each rental period. After a certain
number of payments the consumer will own the goods, although sometimes
an additional final payment is required. If consumers choose not
to buy, they may discontinue the rental agreement and return the
merchandise to the store.
The advertised weekly or monthly rate may sound low and affordable,
but when it is multiplied by the number of weeks or months before
the merchandise is owned, the total cost is usually far higher.
It is possible that the cost may be two to three times higher than
items purchased through other methods like lay-away, store credit
accounts or credit card purchases.
Many rent-to-own agreements don't allow grace periods and payments
must be made on or before a certain date. If a consumer misses
a payment, the merchandise can be repossessed, even if most of
the money owed on the contract has been paid.
Consumers should also be aware that sometimes the rented merchandise
may not be new. Often, returned merchandise is rented again to
the next customer. Before signing a rent-to-own agreement, consumers
should compare contracts from several companies and ask these questions:
- What are the total charges over the length of the contract?
- Is the item new or used?
- Who is responsible for repairs on the item?
- What are the penalties for late payment?
The consumer must decide if having the item now is worth paying
double or triple what the item is worth. Walk into a Sears or J
C Penney and price the same (or better) item. There is no arguing
with the math. Rent-to-own routinely charges 200 to 300 percent
interest on purchases. The following example shows the difference
between buying a $250 TV that sells for $250 at Sears or J C Penney
vs. at a rent-to-own.
$250
TV purchased at a rent-to-own: |
Same
$250 TV purchased with store credit
or a credit card: |
| Amount Financed:$250 |
Amount financed:$250 |
| Weekly Payment: $ 13 |
Monthly payment: $ 16 |
| Number of Weeks: 78 (18 months) |
Number of months: 18 |
| Finance Charge: $ 764 |
Total of 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 |
The above information should be understood to be a general
discussion of the subject matter and DOES NOT constitute
a legal opinion about the situation. For further information
please consult a qualified attorney.
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