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Rent-to-Own: Worth the Convenience?

A Maryland woman signed a rent-to-own agreement for a computer. The weekly payments were $28 for a period of 52 weeks. If she made all the payments, she would pay a total of $1,364 to own the computer–which was used and had a cash price of only $649.

If you need a television, major appliance or furniture but you don't have the cash or credit to buy it outright, you might be tempted to go to a rent-to-own store. These stores advertise that you can take home the item immediately, simply by agreeing to make a weekly or monthly payment. You're obligated only to pay each rental payment as it comes due, and you are free to end the arrangement by returning the merchandise to the store.

This arrangement may sound convenient, but it comes at a very high price. Buying on a rent-to-own plan will often cost you double what you would pay for the item with cash, on layaway, or on an installment plan.

For example, a new $400 washing machine purchased on an 18-month installment plan at the maximum allowable interest (24%) would cost $480 total. Under an 18-month rent-to-own plan, you'd typically pay $1000 or more for the same washing machine. Plus, the rent-to-own washing machine might be a couple of years old and previously rented to many other people.

Maryland law does not place any limits on the finance charges or interest rent-to-own dealers can charge. The dealers are also not required to disclose as an annual percentage rate (APR) the finance charge or interest consumers end up paying to own the product. Therefore, you cannot easily compare the cost of buying under a rent-to-own plan with buying on, for example, an installment plan. If rent-to-own dealers did have to disclose an APR, consumers would see that their rates are often as high as 120% to 150%.

Consider All Your Options
Rent-to-own stores market to people who may think they have no other options, because of low income or bad credit. But there may be less-expensive alternatives:

  • Can you do without the item until you have saved enough money in the bank to pay cash? If the woman who wanted a computer could wait a few months, perhaps by using a friend's computer or one at the public library, she could save $28 a week instead of paying a rent-to-own dealer. In six months she would have enough to buy a new computer priced at $650. She would own the computer in half the time and save more than $700.
  • Can you buy the item on a layaway plan? You may only need a small down payment.
  • Can you buy the item on an installment plan at a retail store? With an installment plan you can take the item home immediately, as with rent-to-own. The law limits the amount of interest that can be charged on installment plans (maximum 24%), so these plans are less costly than rent-to-own agreements.
  • Can you get a short-term loan from a lending institution such as a bank or credit union to purchase the item?
  • Can you find a used item through the classified ads, a yard sale or second-hand store? You may be able to find what you need for the cost of only a few rent-to-own payments.

Your Rights Under the Law
If you do decide to enter a rent-to-own agreement, be aware that Maryland law provides some protections for rent-to-own consumers. Rent-to-own contracts must disclose the following important information:

Whether the item is new or used. This information may be especially important to know when considering purchasing an appliance, a TV or a computer.

What it will cost you. The contract must state how much the item would cost if you paid cash, how many rental payments you must make to own the item, how much each payment will be, and how much you'll have to pay in total to own the item. With this information, you can look at the total amount you will pay to own the item and consider if it is worth it.

Your early purchase option. The contract must give you the option to purchase the item earlier than originally planned by paying a certain amount. The method for determining that amount must be described.

Your right to "reinstate" after late payments or repossession. The law allows consumers who are late in making payments to retain their rights to the item, even after it has been repossessed, if they make all outstanding payments. These provisions protect consumers who have made a substantial investment toward owning the property.

If the dealer repossesses an item you were renting because you failed to make a payment, the dealer must give you a written notice that states your right to reinstate the rent-to-own agreement, the last date by which you can reinstate the agreement, and the amount you will have to pay to reinstate. You may reinstate the rent-to-own agreement within 15 days of the repossession by paying all past due charges, the reasonable costs of pickup and redelivery and a reinstatement fee of $5.

Maintenance and damage. The dealer is responsible for keeping your rented items in good working order without extra charge to you, as long as you have not damaged it. You are responsible for loss, damage, theft or destruction of the property while it is in your possession. If the item is lost, damaged or stolen while in your possession, you must pay the dealer the early purchase option price of the item.

Warranties. If any part of a manufacturer's warranty covers the rental item at the time you acquire ownership, the warranty will be transferred to you if allowed by the warranty.

If you have a problem with a rent-to-own transaction, contact the Consumer Protection Division at 410-528-8662.

January/February 2003

Maryland Attorney General's Consumer Protection Division
Consumer hotline: (410) 528-8662 or 1 (888) 743-0023 toll-free

 
 

Attorney General of Maryland 1 (888) 743-0023 toll-free / TDD: (410) 576-6372
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