30th November 2016
When you’re short on cash, your shopping options are limited. This is especially true for those who don’t qualify for traditional credit, like credit cards. And that’s where rent-to-own firms come in.
Instead of paying for items up front, either in cash or with credit, buyers get the chance to make weekly payments on the goods they need. Everything from household appliances to televisions and furniture can be purchased this way. And, while it seems like a godsend when you are in trouble, you’ll pay much more than retail when you’re done.
Even though rent-to-own firms don’t advertise their services like most lenders, it is effectively like a secured loan. However, the interest rates can easily reach over 60 percent annually.
Initially, the costs seem reasonable. For example, a prominent rent-to-own firm will let you “rent” a 49-inch television from a prominent manufacturer for only £6 per week. While that doesn’t sound like much, over the full 156-week term, you’d pay £936 (before add-ons like insurance and service fees). A similar television purchased through Amazon would only cost £449.
When you look at it that way, does it seem like such a great deal?
Along with the higher prices, there is the risk of repossession. If a buyer misses a payment, then the company can take the item back. Depending on the precise terms, you might not have a lot of warning either.
Now, this risk is the same as any other formed of secured credit. For example, if you default on a car loan, the car can be repossessed too. The same can be said for homes and various other big-ticket items traditionally bought on credit.
The Financial Conduct Authority began regulating the rent-to-own industry in April 2014. They have helped control the activities of those operating in the arena, and prevent less scrupulous companies from operating in the market.
However, even those following the new guidelines aren’t offering a good deal. Their services target more vulnerable populations with limited financial options. Potential buyers are enticed by the ability to acquire new items, including some of the latest tech, at what appears to be a manageable cost.
At one point, as reported by The Guardian, it was estimated that 10 percent of purchasers using these services had a repossession. So, while the costs may initially seem affordable, they can quickly get out of hand.
Many rent-to-own companies advertise the ability to return items, should be payments become unaffordable, as a benefit. But, if you return the item, you still forfeit all of the previous payments. So, you may have spent enough money to have purchased the item from a traditional retailer, but you have nothing to show for it.
If you ever feel tempted by rent-to-own promises, look at the total amount you’ll pay buying the item there. Instead of going that route, consider putting the same amount of money aside as you would for the weekly payment. Then, you can buy the item outright in half the time. And, if you hit a tough financial spot, you won’t have to give anything back or sacrifice your credit.
Yes, it requires patience, but your financial future is worth it.