Rent-to-Own - Does it pay off?
Let's say that you wanted a computer. You go to the store and agree on
weekly payments of $30 a week for a year equaling $1560 for a used computer.
The thing is, you can get a new model for almost half of that at a retail
store. So why would anyone pay twice as much for any item? Convenience.
They probably can't come up with the total amount to buy a new computer,
but they can come up with smaller amounts every week.
Rent-to-own companies also cater to those who don't have the best credit. Many stores will not check your credit, and will only check if you have a current job and have not been a previous delinquent customer.
The amount of money that you agree to depends on the item you are renting and your pay schedule. They will most likely set up payment dates to coincide with your paydays to ensure that you will be getting money that day.
If you do sign a contract with a rental store it is crucial that you make your payments on time. It will only take one missed or late payment until the store send over some people to come and get the items back from you. Many of the repo-men are persistent and will wait until you get home to get their merchandise. In some cases if you go back to the store the next day to make up the late payment and get the item back your payment process will start over. This means all the money you have already spent is essentially lost.
Making timely payments to the store cannot improve your credit, but not making payments will hurt your credit. Generally the only time a rent-to-own store reports you to the credit agencies is if they are having trouble collecting delinquent payments from you.
Some people try and assume that this is a way for them to rebuild their credit. They can make payments on time and slowly improve their score. If that is something you are considering you will want to make sure that the store reports its customer’s payment history to the credit bureaus. Many rental stores do not. Besides, there are more affordable ways for you to improve your credit.
There are some positives to being in a rent-to-own contract. If you are still making payments on the item and it malfunctions, you can call the company and they may replace the item or repair it for you for free. Standard malfunctions are usually covered, while physical damage may cost you more money to repair it.
Another good idea is to try and make extra payments or add more to your payment in order to pay it off sooner and to save you money.
Make sure to thoroughly read the contract. You will want to understand what the penalties are for late payments or damage. The contract should also contain the length of agreement, the amount of each payment, and the total amount to be paid for the item. As always ask questions if you do not understand something and feel free to go somewhere else if you are skeptical of the agreement.
You should try and explore other options when planning on purchasing any items. Many department stores have financing and payment plans that rival the ones you get from the rental stores.
Even most credit cards have better terms than a rental store contract. The interest you pay on the credit card can still be less than the total amount you would pay at a rental store.
The smartest thing to do is to save that money up and pay for it in cash. Take the amount that the payment would cost you and save it. Since the retail price is cheaper than the rental price it will not take you as long to save for it as it would for you to make payments on it. Using the example above, you could put $30 away each week for 6 months and buy the same computer that would cost you twice as much and take you twice as long to pay off through the rental store. It is pretty simple math.
We understand that many people buy things that are more of a necessity than a wanted luxury. We recommend that you only consider rent-to-own stores for items that are more necessary. Items like a refrigerator, and washer or dyer are more important than a TV or stereo speakers.
So before you head off to the local rent-to-to-own store be aware that you may pay three times as much as if you would save to buy it on your own.
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