Why Rent-to-Own is the Wrong Choice for You

There are a lot of times when renting makes sense. When you fly into a new city and you have a lot of traveling to do, you rent a car. When you’re on vacation and want to explore a beautiful little seaside town, you rent a bike.

It makes perfect sense to rent when you only need something once or for just a short period of time. But renting, by its very nature, is really expensive. Why? Because you’re paying money for property you’ll never own, and there’s an enormous mark-up hidden in every rental.

With rent-to-own, the potential to lose money is even greater. Only a small portion of people who enter rent-to-own agreements end up buying the property. In part, that’s because rent-to-own agreements are built to fail, and sometimes they’re outright scams.

What is rent-to-own?

There are similarities between rent-to-own agreements and regular old renting, but they’re not the same thing. With a rent-to-own agreement, you have the option to buy the property after a set number of payments, or you might be contractually obligated to buy.

The main draw? These agreements let you enjoy the use of property, whether it’s a house, an appliance or otherwise, even if you can’t afford to buy it outright. They also give renters the sense that they’re not throwing money away, since they will hypothetically own the property at some point.

In reality, rent-to-own agreements are far more expensive than they seem. The payments you see advertised are broken into weekly figures to make them seem affordable, but you can easily end up paying anywhere from two to eight times the value of the property you rent.

How much does rent-to-own cost?

The cost of renting to own depends on the details of your contract, but it’s always far more expensive than buying. Rent-to-own agreements are so pricey they’re often equivalent to paying a 60% interest rate.

Let’s say, for example, you want to rent a TV — an Insignia 85″ Class F50 Series LED 4K UHD Smart Fire TV, to be exact.

You can currently pay $38 a week for a rent-to-own agreement on this TV, or buy it for $660 from Best Buy. While renting might sound like the better deal since the weekly payments are so small, your payments add up to $1,976 after one year, and that doesn’t even include sales tax and fees. The payments alone are $1,316 more than the market value of the TV.

Or let’s say you want a new laptop. You can buy a 16 inch HP Pavilion 16 GB 16t-af000 touchscreen laptop from HP for $550, or rent one from Rent-A-Center for $41 a week. But after you make the 93 required payments, you will have shelled out a jaw-dropping $3,813. Again, that doesn’t include tax and fees, and it’s already $3,263 above the sale price of the laptop.

Rent-to-own pros and cons

Pros

• Payments can be applied to the ownership cost
• Credit check may not be required
• Full price is not required up-front
• Down payment may not be required

Cons

• Far more expensive than buying outright
• Equivalent to paying roughly 60% interest rate
• Low likelihood of becoming an owner
• Possibility of scams
• Advertised payments are usually lower than your actual payment
• Hidden fees
• Limited use of the property
• You lose the right to buy if you miss a payment

Alternatives to rent-to own

Are there options for people who want to avoid a rent-to-own agreement? Of course!. Admittedly, they might require you to be more flexible about getting what you want when you want it, but they can save you major financial headaches now and in the future.

Wait and save

Sure, you can pay $40 a week to rent a TV. But if you save up your money instead, you’ll have $1,040 in six months. That’s enough money to buy a variety of different TVs outright. The same is true for many rent-to-own agreements: You can save enough to buy the product in a fraction of the time it would take to complete the agreement.

Use a personal loan

Going into debt for a purchase is not ideal, but it can be cheaper than renting to own. For example, let’s say you take out a $1,500 loan to buy a new laptop. At 12% interest, it would cost you roughly $100 in interest if you pay the loan back over one year.

By contrast, with the rent-to-own scenario we mentioned above, you’d pay the rental company more than $3,262 over the market value of the laptop.

Get help

If you can’t afford to buy what you need, consider looking to a loved one for help. Perhaps you can ask a family member for a loan, and offer to write up a payment agreement.

Alternatively, if you have bad credit and can’t qualify for a loan by yourself, ask if your loved one would be willing to co-sign. By offering to share legal responsibility, a co-signer can help you qualify for more loan offers with better, more affordable rates. 

Renter beware!

If you need something right now, the rent-to-own option can be very appealing. You might even tell yourself that you’ll bring the item back after a few weeks or months.

But in truth, those so-called low weekly payments add up to big monthly bills, and they make it nearly impossible to save up what you need for an outright purchase.

In other words, don’t fall into the rent-to-own trap. Instead, save money for big purchases whenever possible, and use loans responsibly if you can’t wait. And far as credit cards, they should be reserved for absolute emergencies only, since the interest rates are so high.

if you’re not sure how to navigate your options, reach out to an NFCC-certified credit counselor for help.