Why Rent-To-Own Retail Purchasing Isn't Worth It 

If you're short on cash and you need a fridge or furniture, you might be tempted at "rent-to-own" options. These are appliance and furniture stores that let customers pay for items over time by forking over a monthly amount. But Consumer Reports illustrates why this is a pretty terrible idea. They break it down in the above video, but their money editor, Mandy Walker, puts it in pretty simple terms:

If these were loans, the equivalent interest rate would be between 50% and 150%. There's lots of fine print in the ads and in contracts, and many consumers just don't realise the full cost.

With a typical plan, you might make monthly payments for two years before buying the appliance at a listed cash price. Consumer Reports found that some of these plans end up costing consumers hundreds of dollars more over time than just paying for the item outright.

It's a classic debt trap, and one that they explain more in the linked article below.

What You Should Know About Rent-To-Own Retail Models: Extra Costs, High Interest Rates [Consumer Reports]


Comments

    No different to buying a house with mortgage vs cash. Maybe that's the way your cash flows.... can't afford it outright, but can afford a lower, albeit usurous, sum on a monthly basis. The alternatives are not necessarily a desirable option - twice weekly launderette, milk crates, or old mattress on the floor for example..

    But for some things, if you're not too ambitious, there are numerous 2nd hand options available much cheaper.

    Of course it's a rort. Anyone who thinks otherwise is a fool.

    But these schemes are mostly targeting the same market as pay-day loans. Such people either don't have the lump sum to buy outright or access to low-rate finance. Their options are 1) don't have the appliance, or 2) get it on punitive credit. The choices are shonky "rental" schemes or some other high interest loan. Either way, they're not going to get a good deal and the debt cycle is perpetuated.

    Being informed is fine, but sadly won't alter the above.

    In Australian there are a number of organisations (such as Good Shepherd Microfinance) that offer no/low interest loans for the purchase of basic household appliances for the genuinely needy - so maybe not the core group of Lifehacker readers! Organisations like these don't advertise (obviously). Worth knowing about to assist those genuinely in need.

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