Understand the benefits and downsides of renting to own to determine if it’s the right option for you.
“Rent to own” refers to the practice of having a portion of your rental payments apply toward the cost of purchasing an item. Rent-to-own arrangements frequently come into play with houses or condominiums, where they might also be referred to as lease options. They’re also used if you want to purchase appliances, furniture, electronics or other large-ticket consumer items.
Rent-to-Own Housing
Rent-to-own arrangements with housing are structured to let you make rental payments, usually with a portion of the payment being set aside toward an eventual purchase of the home. Typically, before moving into the home, you and the owner agree on an eventual purchase price and on the time period during which you can rent the home before you have to buy it.
Rent-to-Own Goods
Some companies also let you buy goods through a rent-to-own model, which is an option for people who do not have a credit card, or who do not want to commit to owning the items. Buying something via the rent-to-own model can be very straightforward. These stores don’t always check your credit, and will deliver your items the same day or the next day. However, if you don’t make your payments, they may have the right to come back and take the items. The cost of shopping with these companies can be very expensive. ConsumerReports.org found one rent-to-own offer for a computer that had an effective interest rate of 311 percent; another offer on a television set had 92 percent interest.
Rent-to-Own Alternatives
Renting to own household items could include higher costs in the long run. With this in mind, you may choose to explore other options. One option is to save your money until you can afford to purchase the item. Another is to take out a low down payment mortgage to buy a home or open a credit account to buy an item you need now. By understanding your own credit, you might find that you’re able to qualify for a mortgage or credit card, and see if either option could save you money over a rent-to-own arrangement.
When Rent-to-Own Makes Sense
Taking advantage of renting to own isn’t always a bad idea. If you know you’ll be able to qualify for a house soon and you want to lock in a price in an appreciating market, renting to own could be a way to protect your ability to buy. When there’s a household item you need, try to negotiate the “buy now” or “90 days same as cash” price down as low as possible so that it’s in line with what other stores charge. Reducing the total price could save, before rent-to-own interest charges mount up. That way, you can save while you’re making payments and pay off the rented item off before the rent-to-own interest charges mount up.
About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.
This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.
Published by permission from ConsumerInfo.com, Inc. © 2013 ConsumerInfo.com, Inc. All rights reserved.