Why Rent to Own Stores Are No Bargain

Rent-to-own stores offer appliances, electronic goods, and furniture for either sale or rent. What on face value seems like a good deal often is not. If you run the numbers you will see you may be paying anywhere from two to four times the cost if you just saved your money and paid cash at a regular appliance or department store.

If you are the customer of a rent-to-own store, you sign a contract agreeing to rent something and make payments regularly. The time frame for payments is usually every week or month. The contracts are for 18 to 24 months. If you make your payments for the entire contract period at the end you either own the item or can by paying a very small additional payment.

With the payments broken down into such small amounts the real cost of the item and the interest paid over the life of the contract is not always obvious to, you, the customer. But if you ask for the total paid out over the life of the contract you will find the amount paid for the privilege of buying an item can be anywhere from 170% to 400% of the cost of the item at a major retailer.

Take this example: You see a TV you just have to have. If you price it at a local retailer you find the price to be $250.00. But you don't have $250.00. So you look at the local rent-to-own store and find you can have the same TV for only $12.50 a week and the length of the contract is less than two years. You think you have found a good deal; something you can afford on a weekly basis, so you sign on the dotted line.

But is it a good deal? Let's run some numbers. The set can be bought for $250.00 cash any day of the week down the street. If you want to own the TV from the rent-to-own store all you do is make your payments and at the end of the contract you will. The length of your contract will be somewhere around 80 weeks. Let's take that time frame for our example.

• Price of TV: $250
• Your weekly payment: $12.50
• Length of contract: 80 weeks
• Total amount paid: $1000.00
• Finance Charge: $750.00
• Finance percentage rate: Over 200%

The other problem with this example is: If you do not make all of your payments you lose whatever you have paid and your TV too. You are not building any equity in the item. It only becomes yours if you pay the entire contract. Let's look at it another way.

If you can wait until you are able to pay cash for the TV it will take you 20 weeks to save the amount needed. If you then continued to save the $12.50 for another 60 weeks ( for a total of 80 weeks, the length of the rent-to-own contract) you would have $750 in savings...plus any interest you earned.

So now you know. If you must have anything right now, you will pay dearly for your inability to wait. If you absolutely can't wait, at least check at more than one store to compare for the best deal.

One of the important rules of good money management is practicing patience. We find ourselves in trouble when we sacrifice what we want most (living debt free) for that which we want now.(stuff) Rent-to-own stores do not help us reach the goal. You cannot have both, so show a willingness and the patience to save.