Is Rent-To-Own a good idea?

Posted by Ginkgo100 | 2:41 PM

The August 2008 issue of Reader's Digest features an article called "7 Rip-Off Tip Offs." One of the rip-offs listed? Rent-to-own merchandise.

The advantage to rent-to-own merchandise

When you rent furniture or appliances, you can have the item immediately. You don't need to have the money available to purchase it outright — and you don't go into debt. You get instant gratification for a low price and no obligation.

The rent-to-own disadvantage

The savvy reader will notice the short length the paragraph above. I can only think of that one advantage: easy, instant gratification. And there is a very ugly disadvantage: You pay a very, very high price for the merchandise. Reader's Digest calculated the equivalent APR (annual percentage rate) of most rent-to-own items as between 75% and 350%. (And I thought 20% credit card rates were high!) At the end of that time, your very expensive sofa is out of style and your pricey flat-screen TV is obsolete. Since you were renting, you could have exchanged them periodically for newer models... but then you would have lost all the money you "invested."

It can make sense in certain situations to rent merchandise. That's just "rent," without the " own" part. Take a hint from the fact that Rent-A-Center and similar operations locate their retail outlets mainly in poorer neighborhoods.

Rip-off tip off words

Take a look again at the short "advantage" paragraph above. It contains red flag words: "no obligation" and "instant gratification." These terms are signals that the subject being discussed is a bad idea, financially speaking. Another red flag term, which certainly applies to rent-to-own schemes, is "no money down."

Don't borrow money to buy things for your house. But don't jump out of the debt frying pan and into the fire by renting to own!

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