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The True Cost of Rent to Own

This article was written by in Consumer. 18 comments.


The debate pitting the concept of buying versus the concept of renting will never end. With a primary home, there may be a plethora of financial calculators and endless real estate analysts to help you make the decision. There are financial considerations as well as non-financial considerations, and pundits on either side who swear their way is the only way and will argue their position to anyone who will listen.

There’s a similar debate concerning cars. Buying a car provides the benefits of ownership, but leasing allows someone to reach for a vehicle perceived to be nicer for a more affordable monthly payment. Never mind that when the lease is up, you’re left with nothing but less money in the bank. I rent my home because I don’t plan to stay much longer, but I purchased a car — a new but well-priced car — because I planned to keep it until its useful life surrendered. If I had chosen a lease, I’d still be making payments, but I’d have a nicer car.

That’s the rationalization that people use when they take advantage of rent-to-buy offers. Stores like Rent-A-Center allow people to drive home something they might like or need, like a flat screen high-definition television or a refrigerator, when they might not be able to afford to purchase the item with one check. Most people turn to credit cards, and subject themselves to 15% to 30% interest. This addd thousands of dollars to the cost of these items over time. Either they are unaware of the reality of the added cost or they believe the extra money spent through interest is worth the convenience of having what they want or need today — without having to delay their gratification through saving in advance.

Credit cards aren’t available to everyone, though. Particularly during the credit crunch, when layaway plans came back into favor for a short period of time. Even now, a spotty credit history could keep even responsible people from finding a credit card with a high enough spending limit to make a major purchase. Renting to own is a fashionable alternative, but the costs can far exceed credit card interest.

According to Consumer Reports, Rent-A-Center is offering a television valued elsewhere at $1,890 for 104 weekly payments of $39.99 a week. The small weekly payment makes this offer very attractive. The allure of a small periodic payment makes any deal seem better — just ask late-night infomercial-based salesmen who sell their products for three easy payments of $19.95 — when the same products are sold in stores for one payment of $19.95. Just ask car salespeople who, depending on the customer, will try to talk in terms of monthly payments rather than sticker price. There is truth to this concept; it is the monthly cash flow that has the most effect on an individual’s budget, but it’s a weak argument for long-term financial stability.

The Rent-A-Center payments for the television add up to $4,195 over the two-year period, and that works out to be equivalent to an interest rate of 92%. That’s payday loan territory.

The company understands that its customers generally choose renting to own as a last resort and are perhaps not in a stable financial situation. Rent-A-Center settled with Washington State for allegedly using underhanded tactics to take advantage of its customers.

Is there ever an occasion when renting to own is a good idea?

Photo: tamakisono
Consumer Reports

Published or updated June 23, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 18 comments… read them below or add one }

avatar rewards ♦31 (Newbie)

Related to this, how often do people really rent-to-own? The alternative being using this program like a car lease and upgrading their TV every two years.

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avatar tbork84 ♦1,867 (Half-Dollar)

As far as upgrading the TV every two years, at least they are able to sell the old one to regain some of the money they purchased it for. Rent-to-own and lease-to-own is generally going to be a bad deal for the renter/future owner, even worse than upgrading every few years.

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avatar wylerassociate ♦905 (Dime)

I would consider leasing a car or a home depending on my economic situation but I would never rent a television for a 2-3 year period.

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avatar rente-doorlopendkrediet

I agree. Even a car I wouldn’t concider to be honest. The way I see it the only ‘smart’ thing to do is considering lease on a home.

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avatar SteveDH

When you’re down, try to keep your head up enough to watch out for the boots! There seems to be no end to the many ways of making money off of those who can least afford it – and this is a prime example. Whether renting an apartment, leasing a car, or using a credit card as a loan, the “true cost” must be analyzed thoroughly. A lot of folks can’t or won’t – and there are too many marginal “business” people who understand that.

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avatar Krantcents

There is a huge market for rent to own, leasing and renting in general! Renting makes sense when you just need something or a place to live for a short period. Signing up for years of payments just does not make sense. Yet there are companies who do this all the time because there is a demand for it. If there were no demand these businesses would go away.

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avatar Ceecee ♦796 (Dime)

How about buying used. I see TV’s for sale really cheap at yard sales, and even freebies on the curb. They just aren’t flat screens. If you can do without having the most current model of almost anything, you can get a viable, used alternative for next to nothing. I got a BOSE portable CD player for $1 when IPods came out. Since I still had a lot of CD’s, it was great!

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avatar STRONGside

I really cannot think of any reason that a person would ever want to do a “rent-to-own” purchase for a luxury item (and yes, I consider a TV a luxury item). It really makes no sense. I have an aunt who actually is renting a refrigerator, so she can build credit. I brought up the idea of a small balance secured credit card and paying the balance off every month, but she prefers to throw her money away at a new fridge, to build her credit. The practice should be illegal just like pay day loans!

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avatar Jack

I want to back up: if you’re going to lease a car, why would you necessarily want to lease a fancy car? You can lease a new Honda Accord or Chevy Cruze–both perfectly fine cars–for under $200 per month. Spending an additional $4000+ per year so you can pretend you own a Mercedes is a complete waste of money. It’s just a car.

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avatar Cejay ♦1,521 (Half-Dollar)

My sister does the rent to own thing and I have sat down and told her how much she spends in the time till it becomes her. She looks at me with a blank stare and says but it is the only way I can afford anything like this. I understand that they justify the costs because they rent to people who will not pay or people who will tgrash the car, computer, TV, or whatever before they get it back. But come on.

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avatar Philip

I think you’re doing payday loans a disservice with the comparison. Sure, the “annual” percentage rate is high, but payday loans are over in a week or two, and they provide emergency cash (to keep the lights on) for those who can’t get it elsewhere. These rent-to-own deals last years and they are for luxuries.

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avatar LifeAndMyFinances

I rented an apartment for a few years because I was saving up my downpayment for a house! I think when you’re starting out, renting your dwelling is ok, but everything else should be purchased! Paying cash for cars is the way to go. If you find a good one, you won’t pay much in repairs, plus you’ll still have something to sell when you’re ready to get another one.

When it comes to washers/dryers, televisions, furniture… DO NOT RENT THESE ITEMS! It is a complete money pit and I can’t believe businesses that rent these items are thriving. Stop trying to impress your friends and be responsible with your money.

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avatar evy

It is easy for someone like you to say that. For some of us, renting is the only option. Trying to move into a house and they dont rent it with a fridge. Dont have the cash cause I just paid first and last months rent and a deposit. But how long can one go without a fridge. I am looking for a used one, but still low on funds.

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avatar shellye ♦107 (Cent)

Payday loans are NOT over in a week or two. Tell that to those who are paying 300% on a payday loan. Most of them just don’t get over it in a week or two. They become a vicious cycle of fees and interest that many people can’t get themselves out of.

Renting to own anything is just a waste of money. Either buy it or don’t, but don’t pad someone else’s pockets by renting (unless it’s an apartment or house that you don’t plan to live in for any length of time.)

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avatar DonnaFreedman ♦2,442 (Dollar)

In a word: No.

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avatar skylog ♦368 (Nickel)

i can not really come up with a time when it would be for me.

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avatar ThePropertyMan

I read the headline as referring to real estate – people renting their home, with a lease option in place, that allows them to buy it from the landlord at some future date, usually at a pre-agreed and fixed price.

We got this idea from the US originally, and it’s been take up my some property investors, sometimes in entirely unsuitable scenarios. I now believe there’s a small tsunami of litigation headed their way, as the complexities start to reveal themselves as the economic situation worsens.

I’ve never heard of it referring to other items – a revealing post.

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avatar qixx ♦1,813 (Half-Dollar)

Ther is one time i see the rental (if not rent to own) as being a better option. College. Renting the flat screen with your roommates for the term/year can make tons of sense. Sure buying one would be cheaper in the end. The draw is getting roommates to pitch in to buy one is much harder than convincing them to pay $10 a week for that TV. When others are involved then renting can be a deal maker. Now if only i knew they were not paying for their share out of student loan money…

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