Think paying 30 percent interest on a credit card is hard to swallow? It's chickenfeed compared to buying the rent-to-own way.
Need a laptop? You can get one for $40 a week with the option of keeping it after you’ve made the required number of payments.
It’s called rent-to-own, and you can do it with everything from computers to furniture to appliances. But this method of get-now-pay-later is nearly universally detested by consumer advocates for a simple reason: Rent-to-own boils down to extremely high costs that are often marketed to those least able to afford them.
In the video below, Money Talks News founder Stacy Johnson discusses the pitfalls of rent-to-own, and explains the true cost of that $40/week laptop. Check it out, then read on for better alternatives.
As Stacy explained, buying that rent-to-own laptop Consumer Reports checked out is equivalent to paying 311-percent interest – which is far worse than the 30-percent interest rate you see on crummy credit cards.
But it’s people with poor or no credit who are most often on the receiving end of these deals. As Rent-A-Center spokesman Xavier Dominicis points out in the video above, “There’s no credit check, no security deposit, no long-term obligation. Delivery is free, and you can return the goods at any time.” The only real roadblock to would-be renters is that companies typically verify employment.
A 2000 Federal Trade Commission survey backs up the allure to the working class: 59 percent of rent-to-own customers had household incomes under $25,000 and 73 percent had no more than a high school education.
If you’re stuck in a situation where you’re thinking about rent-to-own, or know someone who is, think about these things first:
- Consider the alternatives. Consider buying used from a yard sale or thrift store, and check sites like Craigslist and Freecycle for cheap or free furniture. If you can wait a few months, do what Stacy suggested in the video: Setting aside what you would pay to rent an item may be enough to buy it outright at a fair price. In-store financing may be a relative bargain, and even getting a credit card with a terrible interest rate is cheaper than most rent-to-own deals.
- Know the law. Some states have laws capping prices, prohibiting unreasonable fees, enforcing price disclosures and requiring property damage or loss insurance. You can look up your state’s rules at the Association of Progressive Rental Organizations website and make sure the company isn’t charging more than the law allows.
- Read the fine print. Know if your payments are weekly, twice a month, or monthly. Check out the fees and taxes, and find out who’s responsible and what happens if stuff breaks or gets stolen.
- Fight for your rights. Consumer Reports says Rent-A-Center, a large Texas-based rent-to-own company, settled a complaint by the state of Washington over aggressive collection tactics and other alleged violations. (The company denied wrongdoing.) Our story “Abused by a debt collector? Get a free lawyer” discusses what’s legal and what’s not, along with what steps you can take.
- Remember need vs. want. Keep the item only as long as you really can’t do without it to minimize the damage. The longer you keep most rent-to-own items, the more money you lose.
If you’ve ever considered renting-to-own, or struggle with affording the things you want, check out our story The 10 Golden Rules of Saving on Everything.