Bad Credit? Why You Shouldn't 'Rent to Own'

As Americans, we've been flogging ourselves plenty lately for our addiction to credit, and how it gives us the ability to get things now that we wouldn't be able to afford until later. There's another version of that, and it's the world of "rent to own."

It can be convenient for people with poor credit, but in the long run it is a lousy way to buy something. I once priced a 25-inch television at a rental store and a regular retailer. The rental store wanted $86.25 a month for twelve months. That's a total of $1,035. The cash price for the same TV at the regular retailer was just $500. Plus, when you rent to own, it's possible that the TV is several years old and has been rented to countless other people before you.

Click Here to Ask Elisabeth Leamy Your Consumer Questions About This Topic or Any Other Consumer Issue

Even paying by credit card and carrying a balance can be a better deal than renting to own. (Much as it pains me to suggest it.) That's because if monthly rental fees were expressed as an annual percentage rate they would range from about 100 percent to 350 percent. Credit cards typically don't top 24 percent. (Then again, if you pay by credit card and carry the balance for years and years, you could eventually end up paying more that way.)

The best thing to do is take the same amount that you would pay a rental company each month and put that money in a savings account instead. Take the 25-inch television example, above. If you save $86.25 a month, after six months you would have enough to pay cash for the TV. The one disadvantage is that you have to wait.

If you need the item today, you might want to consider buying something at a garage sale or thrift store instead. After all, it's quite possible the rental store is going to provide you with used merchandise, so what's the difference?

Questions to Ask:

1. How much would the item cost if you paid cash?

2. How many rental payments will you have to make to own the item?

3. How much will each payment be?

4. What will the total of all the payments be?

5. Will the item be new or used?

6. If you're late with a payment, will the store repossess the item?

7. If you have trouble making your payments, can you return the item without a penalty?

8. Are you allowed to pay off the item early to save money? Or is there a penalty?

Do Your Homework About 'Rent to Own'

Shop around. Compare the same item at different rental stores and at retail stores.

Consider saving for the item or buying something used instead.

If you must rent to own, pay the item off early if you can to save money.

Make sure the rental store gives you a written contract and keep a copy.

Try to get the questions above answered in writing. Some states require it.

How to Complain

This is a case for the Better Business Bureau and your county and state consumer protection offices.

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