Just say no to rent-to-own

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, rent a car. When you’re on vacation and want to explore that beautiful little seaside town, rent a bike. When you’re throwing a big party and have a lot of guests coming, rent a tent.

Renting makes sense in those instances when you need something once and are unlikely to ever need it again. But renting, by its very nature, is expensive. Because you’re paying for short-term ownership of an item there’s an enormous mark-up hidden in every rental. It doesn’t seem so bad to spend $5 an hour for a bike when you only plan to keep that bike for an afternoon. But what if you wanted to keep that bike forever? A week later you’d already owe $840, and no rental bike is worth that much.

Still, for some reason, people constantly fall into the rent-to-own trap. There’s an allure to the seemingly manageable weekly payments. It doesn’t seem to matter how good or bad your credit is. When you want or need something, but don’t think you can afford it, here comes the rent-to-own store with low prices you can live with.

Except, of course, that those low prices aren’t low at all. Need some evidence? Let’s take a look at some of the deals currently being offered at a leading rent-to-own chain and see if we can come up with a few alternative ways to get the items you want and save a lot of money in the process.

New Television - 55” LED Smart TV

That’s a big TV. You like television and you want a nice, big TV. At my local rent-to-own store a 55” LED Smart TV from LG can be yours for $39.99 per week. Only $40 a week! That’s doable, right?

Of course, that’s $39.99 a week for 104 weeks (2 years). Total cost at the end of those two years? $4,158.96.

Out of curiosity I browsed a few leading online electronics retailers (Amazon and Newegg). Turns out this model is a little older and harder to come by, but I could still get one new for $1,599 from a third party vendor. I could also get one used for $1,280 if I was so inclined. (By the way, I could get a newer 55” LED Smart TV from the same manufacturer for $849, but we’ll stick with the old model for argument’s sake.)

If you wanted to avoid rent-to-own, what are your options?

Saving: If you had your heart set on this TV, it could be yours for $1,600. If you saved your $40 per week rental fee it would take you 40 weeks to save $1,600. If you were willing to wait, it would take you a little less than 10 months to raise that money, saving nearly $3,000 in the process.

Credit: Let’s say you needed that television TODAY, but your credit isn’t very good. You purchase the $1,600 TV on a credit card with a 29.99% interest rate. You still want to pay it off in 2 years, so you pay $89.45 per month. In the end it costs you $546.85 in interest, but still costs $2,000 less than the rent-to-own plan.

Smartphone - HTC One (M8)

Next example – you need a new cellphone. The HTC One is a nice phone. You want that one.

Many consumers purchase their phone directly from a carrier when agreeing to a new service contract. This ties the cost of the phone into your monthly phone bill. There are also a ton of affordable pay-as-you-go plans available, but for the sake of argument let’s say that you really, really want to buy a new HTC One outright. Rent-to-own will cost you $24.99 a week for 78 weeks (a year and a half). In the end you will have paid $1,949.22 for your phone.

How much does a new HTC One cost you elsewhere? It ranges, but the norm seems to be about $500.

If I wanted to avoid rent-to-own, what are my options?

Saving: Setting aside $25 a week would earn you $500 in 20 weeks, or a little less than five months. Your patience will have saved you nearly $1,500.

Credit: Buying a $500 phone at 29.99% interest and paying it off in a year and a half (18 months) requires a monthly payment of $34.83 and will cost you $126.99 in total interest. Using credit – even bad credit – will have saved you over $1,300.

Replacement appliance - Amana 14 cubic foot Top Freezer Refrigerator

It’s hard to live without a refrigerator and having your current model go down unexpectedly could lead to some panicked decision-making. A cheap refrigerator from a rent-to-own store can be yours for 78 easy payments of $19.99 a week – a total cost of $1,559.22.

The exact same model is currently advertised at Home Depot for $539.10. Or you could get a slightly larger Kenmore refrigerator from Sears for $479.99. You have options, is what I’m saying.

If I wanted to avoid rent-to-own, what are my options?

Saving: If you can save $20 a week, you will have your choice of comparable refrigerators in about six months, and you’ll save over $1,000.

Credit: It may be hard to wait six months for a new refrigerator. Fortunately, a new refrigerator purchased on even subpar credit will cost you less than half the monthly price of a rent-to-own unit, and you’ll ultimately pay nearly $900 less over the course of those 18 months.

When you need something right now, rent-to-own 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, if you’re spending so much money to rent an item, there’s almost no way you’re going to be able to save money for its replacement.

Don’t fall into the rent-to-own trap. Save money for big purchases whenever possible, and use credit responsibly when you need something immediately. When it comes to some of life’s basic luxuries, patience really pays.

Jesse Campbell is the Content Manager at MMI, focused on creating and delivering valuable educational materials that help families through everyday and extraordinary financial challenges.

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