For people who have poor credit or little cash on hand, renting to own household items such as furniture, appliances and entertainment items seems like a viable option. The low weekly payments, no credit check and no money down can lure you in quickly, but what is the real cost of that item once you’re done making payments.
The Basic Of Rent-to-Own
Rent-to-own stores offer individuals major household appliances, electronics, and furniture for a monthly or weekly payment, often with no credit check or down payment. This type of arrangement seems appealing, especially to those who are low-income, have no credit or bad credit, or do no own a credit card.
The arrangement seems attractive because the initial investment is more affordable than a typical payment plan, but once you consider the lengthy rental period and excessively high interest, the individual ends up paying far more than what a typical arrangement or loan would have cost.
Why Rent-To-Own Is A Bad Idea
If you consider the overall length of agreement and interest rate, you’ll find that often, people pay twice as much – often times, far more – than what the product is worth.
This Whirlpool Refrigerator (model #W8RXNGMBD) ranges in price from $719 to $624 online from various retailers. According to the website of a nationwide rent-to-own retailer, the exact same refrigerator is available for $16.99 a week for 78 weeks. Once your payments are complete, after 78 weeks, the total cost of the Whirlpool refrigerator is $1,325.22.
Let’s do the math on this for a moment. You’re basically paying $701.22 to finance this refrigerator through the rent-to-own store. If you were to finance the refrigerator on an average credit card, you’d be paying only $121.68 in interest over the same term length.
If you were to put the same $16.99 monthly payment aside in an account (or even a penny jar), it would take you only 37 weeks to save the $624 retail price.
Looking at another example, a Toshiba 50″ LED Smart TV (model #50L3400U) retails for around $599 online and in-store from various retailers. According to the same rent-to-own website, the same television is $19.99 a week for 104 weeks. Once your payments are complete, the total cost of the TV is $2,078.96.
This means you’re paying $1,479 above retail price just to rent-to-own. If you were to finance the same television on an average credit card, you’d be paying only $155.74 in interest over the same term length.
If you were to put the same $19.99 monthly payment aside, it would take you only 30 weeks to save the $599 retail price.
The reality is, however, that most people who choose the rent-to-own option don’t have access to a credit card so they’re left with few options. So how can you avoid the scam that is the rent-to-own business?
Save your money! It’s easy to see the latest and greatest technology and think “I must have that!” but the simple fact is that no technology is worth paying double, triple or more than the retail cost. If you need a refrigerator because you’re without, look on Craigslist or ask friends. If you need a laptop or television because you’re without, check the local pawn shops.
If you have working electronics and you want to upgrade just because, start putting that monthly payment aside instead of handing it to a rent-to-own establishment. It’s obviously a huge waste of money.