When I was getting set up in my first apartment, I can remember my parents thinking about looking into rent-to-own options for furniture and electronics. In the end they filled my first apartment with hand-me-down pieces, some of which I still own.
Fast forward a dozen years, and I remember chatting with the nanny we'd hired to take care of our young daughters about rent-to-own—something she was considering as a way to furnish her empty apartment. My husband and I helped her to crunch some numbers so she would understand that rent-to-own, in the long run, was a bad financial move.
Now Consumer Reports has confirmed what my husband and I suspected all those years ago—and why if I were setting up my own daughters in their first place, I would sooner buy used furniture at Goodwill than consider rent to own.
Consumer Reports found that consumers renting electronics and other appliances from rent-to-own merchants could pay interest rates of up to 311 percent. It also found that you can easily end up paying two to three times the amount it would cost to buy an item outright from a traditional retailer:
The rent-to-own industry has more than four million customers, and its approximately 8,600 stores in the U.S. and Canada generate $7 billion in annual sales, says Consumer Reports. The lure of these stores is that you can acquire a new or used washing machine, television, or bedroom set right away, typically without a credit check and with relatively low weekly or monthly payments.
The agreement is generally on a week-to-week or month-to-month basis, and you can return an item and walk away without penalty and without damaging your credit score, as you would if you were late on a traditional loan payment. If you make all your payments, you'll own the item at the end of the term. But of course, there's a downside—the fact that you've paid way more in the end for something that you couldn't have secured for a lot less.
Another good reason to avoid rent-to-own shopping: Even if you were to exercise the early-purchase or same-as-cash option under the rent-to-own agreement there's a good chance you'd pay more because the "cash price" at rent-to-own stores often is higher than at other retailers.
If you're setting your kids up and they need something you can't afford, there have got to be better ways than rent to own. Can you look on Craigslist? Ask friends and family if they have used goods you could borrow or buy off of them? Another option is finding out whether you or your grown child qualify for retailer financing at a national, not rent-to-own, store. Just remember that even with zero-payment, zero-interest financing, interest will eventually accrue if you don't pay back the amount in time. So if you use this option, be sure to advise your child to set aside a certain amount every week to cover the eventual payment for the home furnishings he or she needs for that first place.