If you don’t have the funds to furnish a space or buy a new appliance outright, rent-to-own furniture can seem like a sweet deal. You make small payments over several months (or years), get repairs or replacements over the term and, in the end, you own a “new” couch or dishwasher!
But … renting to own furniture can be costly. Although the payment you’ll fork over each month is small compared to the full cost of the furniture, renting to own often translates into paying a lot more than you would if you’d simply bought the couch.
What does it mean to ‘rent-to-own’ furniture?
A rent-to-own furniture agreement, also known as lease to own or a lease purchase, is a payment plan in which you agree to make installment payments for new — or gently used — furniture. You can exit the contract anytime by either returning the item or purchasing the furniture for a lump-sum payment. After the agreed-upon number of payments are made, you own the furniture.
Generally, the rental company doesn’t run a credit check for a rent-to-own plan. Instead, a prospective renter may need to provide proof of income and an address — as well as submit personal references — to enter a rent-to-own agreement.
The risks of rent-to-own deals
The risk with these agreements is that the monthly payments required often add up to much more than the sales price of the furniture.
On top of the base payments, a rent-to-own agreement may include mandatory and optional fees that increase your cost of purchasing the item. A few examples of these fees would be:
- Processing fee
- Delivery and pickup fee (if not included)
- Setup/installation fee (if not included)
- In-home collection fee (if they send someone to your home to collect a payment)
- Excessive damage fee (if you break the item or the item is returned with damage)
- Reinstatement fee (to continue renting if you miss a payment or make a late payment)
- Loss and/or damage waiver fee
- Membership fees
- Late payment fee
Let’s say, for example, you enter into a rent-to-own contract with one of the largest and most popular rent-to-own retailers in the U.S., Rent-A-Center. As of this writing, Rent-A-Center advertised an Ashley Furniture dining set on sale for 14 monthly payments of $104. After 14 months, you will have paid a whopping $1,382.69, excluding taxes and applicable optional fees, to become the owner of a now year-old dining set.
The same dining set is on sale at Target for roughly $590, excluding tax. In this case, the rent-to-own agreement costs nearly 2.5 times more, essentially the same as paying a 200% APR.
“Overall, rent-to-own programs often charge high rates that leave consumers paying significantly more than the furniture they are buying. That’s not worth it for any consumer,” said Adam Garber, of the U.S. Public Interest Research Group (PIRG). “You should think long and hard before entering any such deal and explore alternatives.”
On top of the payments, mandatory rental fees and applicable taxes, you may be encouraged to tack on optional fees such as, for example, a membership fee for the Rent-A-Center Benefits Plus program. The program comes with extra product protections, coupons and discounts with some other retailers for an additional $3 a week, or $13 a month.
Rent to own isn’t limited to furniture. The plans can also apply to consumer electronics, appliances or even car tires.
Take, for example, the popular Nintendo Switch gaming console. After 12 monthly payments of $115 to the other big-box renter in the U.S., Aaron’s, you’ll have paid $1,379.88, excluding taxes and applicable fees, to own the console. Meanwhile, you could buy a new version of the same console from Best Buy for $299, excluding tax.
Getting out of a rent-to-own contract
Most contracts allow you to exit the contract anytime, by either returning or buying the furniture. You are not obligated to continue the contract into the next period or to purchase the item. Most plans give you the option to buy the furniture by making an early, lump-sum payment equal to some or all of the remaining rental payments. Some companies also let you upgrade the item to a newer version anytime, which may mean entering a new agreement with a different monthly payment.
But if you choose to return the item, you will not be reimbursed for any of the money you’ve paid into the agreement.
If you fail to make the required payments, the company will likely repossess the item and may charge a late fee and/or other related fees. If you catch up on payments and want to continue the agreement, you may be charged another fee to reinstate the plan. If the company determines you have damaged the piece, you may be required to pay an excessive damage fee or buy the item.
Questions to ask before you sign a rent-to-own agreement
Garber does not recommend using a rent-to-own plan in any circumstance. But, he said, a consumer who is considering entering a rent-to-own agreement “should do everything in [their] power to make sure that the contract protects [them] from additional charges down the road.”
If you do choose to go with a rent-to-own agreement, Garber recommends asking the following before you agree to a plan:
- Will you be charged any additional fees outside of the monthly payment?
- What happens if you miss a payment?
- What’s the full cost of the rent-to-own plan, including fees?
- Will you be charged for services such as cleaning, repairs or replacements?
- Will you be charged a return fee?
- What are the service fees? In some contracts, the company may charge a fee for services such as repairs and replacements for the duration of the deal.
Are rent-to-own plans regulated?
Depending on how the deal is structured, a rent-to-own plan may not be covered by federal lending laws, which require certain disclosures and provide consumer protections. But the plan may be covered by state laws regulating rent-to-own transactions. The protections vary depending on the state in which you live. You can check with your state’s attorney general to learn if your state has enacted protections, and to see what those protections entail.
Other ways to finance furniture
Even if you don’t have much cash on hand at the moment, it may be worth it to you to explore all possible alternatives before deciding to use rent-to-own financing. In some cases, it may even be cheaper in the long run to borrow using a credit card or a personal loan.
When you use in-store financing to buy furniture, the retailer will typically issue you a loan or a store credit card you can use to cover the purchase. You are required to pay the amount back over time just as you would pay off a loan or credit card. Some retailers offer promotional low or 0% interest financing options, so you may be able to avoid paying interest on the loan if you can pay it off within the promotional period. If you don’t pay off the full amount during the promotion, however, you may be charged interest retroactively on the full purchase amount, so be sure to read the fine print. Once the promo period ends, the interest rates can be incredibly high — 25% and up.
Pay in cash
If you can stand to wait a while to furnish your space, saving up and paying for the item in cash is always the best option. Read up on these savings strategies to get started. One strategy you could use: Pay yourself what you would pay for the item in the rent-to-own agreement. You can set up an automatic transfer to a savings account to simplify the process. You’ll have saved the full cost of the item in a significantly shorter time frame than it would take to own the item in a rent-to-own agreement.
Some rental companies offer what’s called “same-as-cash” financing. If you use same as cash, you’ll make larger monthly payments over a shorter term. The resulting total amount paid is the advertised “cash” selling price, plus taxes and any applicable fees.
For example, Rent-A-Center lets renters pay off an item over 90 days using the same-as-cash financing, while Aaron’s allows customers with rental agreements longer than six months to pay off an item at its “cash price” within 120 days.
Same-as-cash deals may cost less than entering a rent-to-own deal for a longer term, but the cash price calculated by the company may still be significantly higher.
We observe this difference in our previous example of the Nintendo Switch from Aaron’s. Aaron’s prices the Switch at $825.99, versus the Best Buy price of $299, excluding tax. Even if same-as-cash prices are equal to retail prices, after fees are applied you may still pay significantly more than you would pay if you’d bought the item from a retailer or used an alternative form of financing.
Layaway programs such as those offered by retailers Sears and Kmart allow borrowers to put an item on hold as they pay it off over a specified period. When the item is paid off, the customer owns it and can generally either pick it up from a store or have it delivered.
Enrolling in a layaway program may cost a service fee between $3 to $15. If you fail to complete the program, you may be charged a restocking fee of about $10. All fees associated with layaway programs vary by retailer.
Use a 0% intro purchase APR credit card
If you have a good credit score or better, you may be able to qualify for a credit card that won’t charge you interest as you pay off the furniture for a certain period. The key is to find a card with a 0% intro APR for new purchases and pay it off before the promo period ends.
CompareCards, another LendingTree-owned site, has compiled a list of the best 0% purchase APR credit cards >.
During the promo period, you won’t be charged any interest on purchases made with the card. But at the end of the period, you may see the rate climb significantly. For some cards, you may be charged deferred interest on the charges you haven’t paid off by the end of the promo period.
Use a personal loan
A personal loan is an installment loan paid back in equal payments over a set period at a fixed rate. A personal loan could be a good option, especially if you have good credit and can qualify for a loan at a lower rate than the cost of a rent-to-own arrangement. But you’ll need to watch out for fees that may increase the cost of borrowing, such as origination fees. You can compare your top personal loan offers from multiple lenders with our parent company LendingTree without harming your credit score.
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If you’re a millennial, shedding the burden of ownership and having the ability to get rid of something that’s no longer serving you whenever you feel like it may seem like a dream. But rent-to-own furniture is very different from — and a lot more expensive than — trading an auto loan for Uber rides in a big city. If that’s the kind of noncommitment for which you’re looking, companies such as Feather, based in New York City, offer furniture subscription services.
Buy used furniture
If you’re only going to live somewhere for a few months and don’t want to spend the money on furniture you’ll need to get rid of fairly soon, consider finding cheap deals on Craigslist or other online marketplaces.
Because you risk charges for damage or paying for the entire cost of furniture, Garber recommends those in a temporary living situation attempt to find low-cost furniture on resale sites such as Craigslist or at a thrift or discount store before considering a rent-to-own agreement.
Rent to own is usually a bad deal. Those who use rent-to-own financing often pay double or more than what they would pay if they had saved for and purchased the item. If you are considering using rent-to-own financing to buy furniture, it’s recommended you explore all other available options, including using in-store financing or borrowing with a personal loan, before entering a rent-to-own agreement.
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