Rent-to-Own: Consider Saving Up Instead

By Miranda Marquit (Staff Writer), on February 9, 2010

Over Christmas, my husband’s parents came to stay with us for two weeks. We have an extra bedroom, but no bed for it. While the air mattress is fine for a couple of nights, we didn’t want my in-laws to have to sleep on it for two weeks. We’re not quite ready to buy another bed, so we decided to rent one. My husband called the rent-to-own places here in town, and we found one willing to rent us a new, never-been-slept-in bed for a month (they wouldn’t do it for two weeks).

In spite of the fact that I once got a payday loan, I had never been into a rent-to-own place before. I filled out the form presented to me (which set it up like a loan, even though the folks at the counter assured a panic-stricken me there would be no credit pull), and then we had to wait while the documents were prepared. I looked around the store with interest, wondering what sort of deal you can get on merchandise at such a store.

Photo by aranarth via Flickr

I discovered that if you buy the items outright, they cost something similar to what they would at a retail store. However, if you rent the items first, making monthly payments, the story quickly becomes different. If you make monthly payments, going to term (12 to 36 months, depending on the item), you could end up paying three to four times retail. In fact, you could end up paying nearly $1,000 for a basic computer that costs $300 elsewhere if you make the payments of $20 a week ($80 a month) for the 12-month term.

The Niche for Rent-to-Own

Clearly, despite the large premium you pay when you go with rent-to-own, these places are quite popular. Indeed, while we were there, three different customers came in to purchase different items: two TVs and a camera. I heard one mention that he had poor credit, and couldn’t get financing for the 42-inch television he wanted. The sales rep said it was fine; he just need to prove that he could make the weekly payments. If he made all the payments, he would own the TV outright in 24 months. If he wanted to, he could pay off the obligation earlier, and owe less overall than if he carried the transaction to its term.

Rent-to-own provides a place for those with poor credit to bring appliances, furniture and electronics home with a smaller upfront commitment. The rent-to-own place can take the items back if customers miss a payment. So if you pay your $80 a month for the computer, after four months, you would have covered the retail cost. However, if you miss your payment on fifth month, that computer can be taken back, per the agreement. (And, it can be cleaned up and rented to someone else — albeit for less as used merchandise.)

Even with this risk, many people still make use of rent-to-own. It provides instant gratification, and it offers folks a chance to get something they can’t really afford, and stick it in their homes. In many cases, due to the fact that many who frequent rent-to-own places have poor money management skills, items are repossessed after a few months. The people who rented the items don’t own them, but they are still out the money. This perpetuates a cycle of money habits that can result in financial devastation and an inability to build good credit.

Saving Up Instead

The key to breaking the cycle of rent-to-own is developing a “saving up” attitude. This requires that delayed gratification become the order of the day, rather than a desire to go out and buy something immediately. Imagine: If the computer buyer in our example were willing to save up for four months, and wait to make the purchase, she could own the computer outright, and save close to $700. Such a realization requires a long-term view, and the recognition of the difference between needs and wants.

My experience with the rent-to-own place wasn’t common, but I learned something as I wandered around that day. It’s always better to save up for something when you can. You pay less, and you are less likely to fall into habits that deprive you of your financial freedom.

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Miranda is a journalistically trained freelance writer and professional blogger working from home. She is a contributor for Mainstreet.com, Personal Dividends and several other sites. You can also find her at The AllBusiness Personal Finance Corner and the Banks.com Mortgage Blog.

All posts by Miranda Marquit (Staff Writer)

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