Do you need a new television? Kitchen appliance? If you are thinking about buying one through a rent-to-own contract, keep reading. At first, a payment of $16 every two weeks sounds like a great deal for a flat screen TV with a purchase price of $300. But wait a minute, $16 every two weeks for two years (a popular option for rent-to-own contracts) comes out to $832. What happens if you miss a payment? The rent-to-own store usually repossesses the item from you immediately. It probably will not matter if you already have paid in more than the item is worth.
Many people enter a rent-to-own transaction because they have bad credit and are trying to establish a credit history. However, rent-to-own does not help you to establish credit. Companies that offer rent-to-own typically do not report payments to a credit bureau.
Maybe you think rent-to-own is your only option. With a little patience, there are other ways. Ask yourself these questions:
Can you delay the purchase until you can save enough money to pay cash for the item you want? In the example above, paying cash would save you $532?
Is there a retail store that offers a layaway plan for the item? Layaway plans usually require you to pay ten percent down plus a small layaway fee. They you have three months to pay off the balance.
Have you applied for credit to buy the item from a retail store? Getting a credit card or installment loan from a department or big box store is often easier than getting a major credit card. The interest rate is typically higher than for a bank loan or credit card. Minimum payment requirements are often higher, too.
Would a bank or credit union loan you the money? Getting a loan is easier with a good credit score, a co-signer for the loan, or some kind of collateral. Higher credit scores (720 and above) make it easier to find a loan and will reduce the cost of borrowing.
Does the item you want to purchase have to be new? Check garage sales, classified ads, second-hand stores, pawn and repair shops. You might find a nearly new item for much less than you would have to pay if you were to buy it new.
Considering these options before you sign a rent-to-own contract will help you save money.
By Joanne Cavis
UGA Cooperative Extension