Risky Decisions with Rent-To-Own

This is day four of our series Put a Bow on Your Holiday Budget: 6 Days of Advice.

For those struggling to get credit, a rent-to-own store may seem like the best option for big purchases such as appliances, furniture and televisions.

But rent-to-own programs are a trap along the lines of payday loans that you should avoid.

How They Work

Rent-to-own programs involve the consumer receiving an item in exchange for a predetermined amount of weekly payments at the end of which the item will be considered property of the consumer.

Advertisements lure customers with talk of purchasing an expensive television for less than $20 a month. But that’s rarely the real deal. .

One of the most noticeable ways renting to own can leave you unhappy is with the quality of their items. Chances are these are items that have been rented by people who have defaulted, meaning you might still pay full price for a used item.

And on top of possibly renting a used item, the payments that initially seem cheap and simple really start to add up. If you are renting a $1,000 television set for $20 a week for two years, you will end up paying more than $2,000.

Target Poor Credit

Businesses like these are often preying on people with poor credit from a history of missed payments, in part by promoting the fact they don’t check credit scores. But the risks can be high, because just one missed payment could result in a repossession of the item without credit for previous payments.

So although renting to own offers purchasing power without credit, it almost certainly doesn’t offer you the biggest bang for your buck, making you pay nearly double the price of an item you rent. And if you’re still not convinced, consider if you would sign up for a credit card with nearly 100 percent interest. Didn’t think so.

Despite these negative qualities, simply renting from one of these businesses has a place in a smart budget on the occasion as well. If you will be staying somewhere for a short amount of time, it may be cheaper to rent furniture and appliances rather than spending the time and money involved with moving your belongings or buying new ones. Just be sure to budget carefully and take a close look at the financial agreement.

In the end, credit alternatives will always have their pros and cons, and you should make sure you are fully informed before making any decisions.

Photo thanks to irina slutsky under a Creative Commons license on Flickr.