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Rent-to-own instead of a loan?

[Jul 21, 2011.]


If you think you're being smart by avoiding a loan to finance a purchase and using a rent-to-own plan, think again. Consumers who use rent-to-own plans to buy electronics and appliances could end up paying interest rates over 300 percent, according to a recent Consumer Reports investigation.

No credit check

Rent-to-own stores can allow people with low incomes or poor credit to purchase items without qualifying for a loan. Rent-to-own plans allow you buy furniture, appliances, TVs and other other goods right away. Usually there is no credit check and you make payments weekly or monthly. The industry has about 4 million customers and generates about $7 billion in annual sales in the U.S. and Canada, according to Consumer Reports.

The upside to rent-to-own is that you can acquire a item that you want and can return it at any time without penalty or hurting your credit score. But the biggest negative of rent-to-own is that you may end up paying two to three times the actual price of an item. Consumer Reports points out how exorbitant the interest can be with the following example:

Consider the deal for a $612 Toshiba laptop computer we found at one rent-to-own store. It was being offered at $38.99 a week for 48 weeks, for a total of $1,872, excluding sales tax and other charges. That's the same as buying the laptop at the manufacturer's suggested retail price and financing it at an interest rate of 311 percent. You could buy three of the laptops outright for that $1,872.

Delay your purchase

A better alternative to using rent-to-own is to put off making a purchase until you actually have the cash. This can be tough to do if you really need a bed, washing machine or some other item. But in the end you'll be better off avoiding high interest payments and waiting.

If you really feel the need to finance a purchase, you'll get a better deal with a personal loan or even by using a credit card. Shop around to compare personal loan deals to determine if borrowing money is really the best thing to do at this time. Getting a loan will require a credit check and you may be turned down if lenders view you as too big of a risk.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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