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The High Cost Of Rent-To-Own

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    The High Cost Of Rent-To-Own

    The rent-to-own concept sounds appealing to many, especially if their are uncertainties in your future plans. Since you're not sure what you'll be doing or where you'll be living, you can rent the item and if things settle down, you have the opportunity to purchase it. If things don't settle down, then you aren't stuck with the item since you have only been renting it. The selling model allows a customer to keep their options open.

    In addition to not being locked into a long term commitment, the rent-to-own stores also offer the convenience of not having to pass a credit check. There is also no need to make a deposit most of the time. Since the rent-to-own system extends the payments usually over a couple of years, the monthly payments tend to be fairly low.

    This has made the rent-to-own concept popular with consumers. Revenues in the rent-to-own category bring in well over $5 billion a year, but they come from people that can least afford it. According to a Federal Trade Commission (FTC) survey, 59% of people that use rent-to-own come have an annual income of less than $25,000, while nearly three-fourths have a high school education or less.

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    The problem is that the rent-to-own system is so expensive that there is rarely a time that it make sense to use no matter what your circumstances. Rent-to-own transactions are not treated as credit since the consumers don't technically own the item until they have made the last payment. That means the fees that consumers pay over and above the true cost of the item are unregulated by usury laws. This helps rent-to-own companies to conceal the fact that consumers end up financing their purchases at triple digit interest rates from 200% - 500% according to the US Public Interest Research Group.

    A typical example will show how even with low weekly payments, the final cost can be thousands of dollars more than using other ways to pay for the item. A typical rent to own contract for a new computer would be $29.99 a week for two years. This would make the final cost of the computer $3,119. The same computer could be picked up at a typical discount computer store for $700 meaning the computer would cost over 445% more through the rent-to-own system. Even if you put the computer on an 18% credit card, making the same payment of $29.99 a week you'd have the entire computer paid off in less than 8 months saving over $2,300.

    Even though many people opt for rent-to-own because of uncertainties whether or not they will want the item, a FTC survey found that 70% of the people that take out a rent-to-own contract end up purchasing the item. This means that even when uncertain, most people are going to be better off financially purchasing the item through other means than rent-to-own.

    These other options include financing the purchase through a store credit program or on your credit card if the funds aren't immediately available. You'd even be better off asking for an increase in your credit card limit or opening a new credit card account than purchasing through rent-to-loan in most cases.

    #2
    Re: The High Cost Of Rent-To-Own

    The only time I have found it to be reasonable to rent to own was a washer and dryer. I was able to rent one for a brief time while I saved for a new/used one. The cost of going to the laundramant was HUGE compared to the cost of renting the units. The rent was about $20 a week while the laundramat was well over $30 not to mention the going there and what not. We have 4 kids plus us and when the older kid comes home. But again we did it only briefly while we got together the money for a new one. We were able to purchase one for $200 at home depot. it wasn't the greatest one but it worked! and still does 2 years later.

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      #3
      Re: The High Cost Of Rent-To-Own

      I personally cannot believe that anyone would fall for the rent to own qimmick? I thought the stores would go out of business, but they haven't.

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        #4
        Re: The High Cost Of Rent-To-Own

        Some people don't have the options with their credit that others do and this can give them that option. Not saying that it isn't bad, just think if you have terrible credit and need a fridge or a stove or something. You might be able to find one for $100 but what if you don't have it? then you can rent one for about $10 or $15 a week. which is sometimes so much easier. Other people do it because they just want stuff and have no credit or bad credit.

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          #5
          Re: The High Cost Of Rent-To-Own

          How about the rent-to-own houses? Anyone have any idea on how those work?

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            #6
            Re: The High Cost Of Rent-To-Own

            That sounds like contract for deed. Basically what you do is pay the owner of the house a down payment, usually around $2000 based upon a $30,000 home. Then you make monthly payments to them. Approximately half of it goes toward the principal or whatever arrangement you make with them. Then about 1 to 2 year later, you go to the bank and the owner shows that you have paid XXX dollars down via this method and you can use this as credit as well as a down payment. this is a good idea if you can finance it yourself within a short time. It can be more expensive in the long run though. depends upon the agreement. Also you always have the option to walk away at any time with no consequences but you lose all you paid into it including the down payment. Generally you are the one that pays the taxes too.

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              #7
              Re: The High Cost Of Rent-To-Own

              The only person I know that did that, paid a larger rent each month. Let's say the regular rent was $600 and they paid $800 each month. That extra $200 went into a fund to be used as a down payment. When they got enough down payment, the owners then held the mortgage on the property. I have never heard of anyone being sucessful at that, they usually wind up losing that extra money.
              This was a while back so thing may have changed.

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                #8
                Re: The High Cost Of Rent-To-Own

                Contract for Deed usually has a down payment upfront. but not all. I have actually done it twice in my life and my "rent" was actually pretty average compared to the area. But as said, you usually end up paying more than going through a bank. but then again you obviously have a credit problem if you choose that option over a bank so it does make it a good option in that at least you are not throwing more money away on only rent. Not everyone can qualify for a bank loan. And at least it is your house. The first time I did it we moved so we lost the down payment but we had been there for more than a year so it wasn't too bad. the second time I got divorced and he kept it. Make sure to get a contract and make sure the terms are acceptable to all.

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                  #9
                  Re: The High Cost Of Rent-To-Own

                  My sis has done the rent-to-own for years. She added it up one day and figured she paid twice what the item was worth. Thank goodness she woke up and quit the cycle. Even used is better than paying double!

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                    #10
                    I agree that a lot of people get ripped off when they enter in to a rent to own agreement for a house. The main reason though is lack of due diligence.

                    If someone takes the time to learn and research how the rent to own process works and they know exactly what they are getting in to then they really can be win-win deals.

                    Comment


                      #11
                      Originally posted by renttoownhouses View Post
                      I agree that a lot of people get ripped off when they enter in to a rent to own agreement for a house. The main reason though is lack of due diligence.

                      If someone takes the time to learn and research how the rent to own process works and they know exactly what they are getting in to then they really can be win-win deals.
                      Actually what is funny is that buying a house over 20 or 30 years is not much different. if you pay 500 a month for 30 years that is 180,000. depending on the kind of house you get that could easily be twice the actual cost of the home. It all depends on the interest one gets. here is an actual example using a mortgage calculator of a house costing 50K at 7% interest over 20years:

                      The bottom line, is that this repayment mortgage for $50,000.00, over 20 years, will cost you $387.65 a month. In taking out this loan, you'll pay a total of $43,035.87 in interest. The true cost of this loan is $93,035.87.

                      so that house is almost twice the original cost.

                      Comment


                        #12
                        Cicy,

                        You're right. When you borrow a large amount of money of a long period of time(home loan) you pay interest for using that money.

                        I am lost on what point your making though when you say you end up paying double over 20 years. Are you saying you shouldn't buy a home and you should rent instead?

                        Buying a home is definitely a better option FINANCIALLY if you stay in the same place over 20 years.

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