Rent to Own: Is it the right move for you?

So you just finished a weekend marathon of DIY and are feeling overly motivated to renovate that outdated 80’s kitchen into the latest and greatest state of the art, stainless steel mecca with the high hopes of producing top notch cookies that would make Betty Crocker look like a thing of the past (much like your microwave). In your eagerness to turn motion into action, you pull out your iPad and start googling your dream kitchen. With so many variations of brands, styles, features, and prices, you begin to feel a bit overwhelmed. Not to mention, your budget is a bit tight. As you take a moment to clear your head, you notice an ad from your Sunday’s newspaper advertising low monthly payments on new appliances. No credit needed…flexible payments….. You quickly pick it up thinking that it’s meant to be…an answer to your dreams and there it is in big bold letters…. RENT TO OWN.

“Rent to Own” (RTO) is a type of legal transaction under which tangible property such as furniture, consumer electronics and home appliances is leased in exchange for a weekly or monthly payment, with the option to purchase at some point during the agreement. Consumers are not obligated to purchase the goods. Typically RTO agreements state that the agreements can be terminated with the return of the merchandise. However, you do have the option to rent the goods until you have purchased them. Sounds like a good plan, don’t you think? I mean if you’ve paid on something for a while, why would you want to return it? You would be left with nothing to show for your payments. Right? Well, before you answer that…..let’s look into the “details” of RTO’s and then you can make an informed decision.

Let’s use the example from Aaron’s on-line advertisement for a new Frigidaire 30” Smoothtop Electric Range. It’s advertised at an “everyday low price: of $1013.99”. The payments are advertised at $119.99/mo or that breaks down to $27.69/wk, which fits into my weekly budget (assuming I give up eating out each week). The advertisement states that I can own it in just 12 months and my first payment is only $25 if I lease online. I quickly reach for my calculator to make sure that the purchase price of my new stove is $1013.99 + tax. $119.99/mo x 12 months equals $1439.88. I must have hit a button incorrectly because it clearly states the everyday low price is $1013.99. I calculate my payments again and once again, I come up with $1439.88 (without tax). I’m a bit confused so I begin to read the fine print (remember this….the more important the information is, the smaller the print is) “Cost of Lease Services; $425.99”. That means if I choose to lease this stove for 12 months, I will be charged a service fee of $425.99, which is added into my total “lease payment” to equal $1439.88. I also have the option to do 120 days same as cash which means, if I pay it off within 120 days*, I can purchase it for the cash price of $1013.99 and any applicable fees and tax. Of course, if I decide I just can’t make the payments any longer, I can turn the stove back in…..with no refund of course, and no equity because I’m leasing the stove.

My suspicions are high now so I decide to put my research hat on and do some price comparison shopping.  I looked online at a big box store that sells appliances and to my amazement, I found the same stove for $494 + tax. What??? I was going to be charged $425.99 just for a “lease fee” from  Aaron’s. I took out my calculator again and divided $1439 (purchase price + cost of lease services) by $494 (the price of the stove from the big box store) It comes up to be  2.9 which means I could buy almost 3 stoves at the big box store for the price of the lease from the RTO! If I saved $119.99/mo, I could purchase a new stove from the big box store in as little as 3 ½ months! This simply seemed like a “no brainer” to me. It’s worth it for me to suffer through my 80’s style appliances until I’m able to save enough money to purchase my appliances, one by one. When you are in the market for new furniture or appliances, be sure to consider the true cost of rent-to-own purchases and don’t let haste make waste!

 

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