Consumer Comeback Blog

Rent-to-Own Stores: Why You Shouldn’t Pay 311% Interest

Written by Jeffrey Trull

kitchen appliancesRent-to-own stores are a big business. According to Consumer Reports, this industry is worth about $7 billion in annual sales with 8,600 stores in the U.S. and Canada run by leaders in the industry like Rent-A-Center and Aaron’s.

Customers often look to rent-to-own stores for furniture, appliances, and electronics they want or need now without relying on credit or paying cash up front. But this comes at such a high cost that even the worst credit card deals look tame compared to rent-to-own offers.

Before you consider rent-to-own options, here’s more on how these stores work and why they’re often a bad deal for consumers.

What’s the deal with rent-to-own stores?

Rent-to-own stores, like Rent-A-Center and Aaron’s, allow customers to take home the stuff they want today without paying for it up front. Customers pay a weekly or monthly fee to rent the item. After making fixed payments for a certain period of time, they’ll own it.

Many rent-to-own stores offer these deals without a credit check. Often all you need is some proof of income, and you’ve qualified to take home a new TV or computer.

Customers have the option to walk away from the deal at any time by returning the item. Or they can pay the “cash price” to avoid future rental charges.

But there’s much more to these deals that sets them apart from other retailers.

Why you shouldn’t rent-to-own

Rent to own stores are really just an extremely expensive way to buy stuff. We’re not just talking a few dollars or 10% more. Think two to three times the price you’d pay at other stores.

Consumer Reports illustrates just how bad a deal they are. From their example, a Toshiba laptop that cost $612 at a retail store would end up costing $1,872 after 48 weekly payments of $38.99 at a rent-to-own store. This represents an equivalent interest rate of 311%, and buying the laptop outright would save $1,260.

Trends were similar for other items that Consumer Reports compared, like an LCD television, Whirlpool washer and dryer, and a Signature Designs dinette set.

That’s not to mention that many of these items could be worth much less by the time they’re paid off, much like with owning a depreciating car.

The amount of attention these deals have gotten from state lawmakers is enough to raise flags about the industry. Today, 47 states have laws on the books related to rent-to-own transactions.

States including Connecticut and Ohio have limited by law how much the total cost of the items can exceed the cash price. Other states including Maine, West Virginia, and New York, cap both the total cost as well as the cash priced on which the item is based.

The real kicker: Most rent-to-own customers don’t even end up owning their rentals. According to industry reports, only about 7% of customers rent the item for the entire term. About 25% end up owning the item, usually through early purchase options.

Consumer Reports says that rent-to-own should be avoided, even if you have to wait longer to buy.

Rent-to-own alternatives

The solution to bad deals at rent-to-own stores is simple: don’t use them. But if you still want your stuff, you’re going to have to figure out a different way to get it.

The way that makes the most sense: save before you buy. From the examples Consumer Reports provides, you can own your purchase in about one-third to one-half of the time while saving on the total price. You’ll have to wait longer to buy, but the savings can be worth it.

If you can’t wait to buy, many other financing options may be better. Some retail stores offer financing to qualified buyers. Check these options first, and you’ll probably save on interest no matter the rate.

Even using credit cards to finance your purchase is probably a better deal than the rates that rent-to-own stores charge. While some credit card APRs are upwards of 30%, that’s still a fraction of the effective interest you’d pay with rent-to-own stores.

If you’re set on using rent-to-own stores, know the laws that govern them. Your state may have laws like the ones mentioned above. For more information, check out the laws in your state.

You may have other protections as a consumer against unfair collection practices, so look these rules up if you feel collection practices have gone too far.