Feature: Rent to Buy

Rent to buy

Try before you buy

Rent to buy deals encourage you to sign up now and have the computer, electrical appliance or TV delivered tomorrow. If you’re low on cash, this might seem like a great offer. But shopping this way can lead to a bigger hole in your pocket in the long run.

How rent to buy works

You rent a new or pre-used item (for example, a fridge or television) for an agreed period of time. You make regular rental payments, for example, every month over 3 years. You are not hiring the goods but you are making a commitment to buy them. At the end of the rental period, you pay a nominal amount to finalise the purchase.

The real cost of rent to buy

Over time, the total rental payments always add up to more than the cash price of the item – sometimes a lot more. You may also have to pay fees and charges. It can easily become more expensive than buying the goods outright with another form of credit, such as a no or low interest loan.

Check your ownership

With a rent to buy contract you own the goods from the beginning of the contract. You also owe a debt to the supplier of the goods (the credit provider) who will take a bill of sale or mortgage over the goods you have purchased. There are different types of contracts with different terms so check with the supplier to find out if you have the right or obligation to purchase.

Be aware of your responsibilities

If the item you are renting is damaged, stolen or destroyed, you still have to pay rent on it. You may have to take out insurance to cover the cost of replacing the item. Sometimes this is a condition of the agreement.

Case study: Brian ended up with a dud deal

When Brian’s fridge broke down, he couldn’t afford to buy a new one. So he signed up to a rent to buy scheme on a second-hand fridge, aiming to buy it with monthly rental payments. But Brian signed the contract without reading it properly.

After 18 months of repayments, he was told by the company that, to buy the fridge, he would have to pay $532 on top of what he’d already paid. All up, Brian paid more for his second-hand fridge than he would have for a new one.

Read your credit contract

If you decide to take up a rent to buy deal, know exactly what you’re getting into. Check all the terms and conditions of the agreement before you sign anything.

Find out if you will be charged account-keeping fees and penalties if you miss repayments, break the agreement or pay it off early. If you break the rental agreement, you may still have to pay an amount equal to the rental payments for the full term of the agreement. This applies even if you return the goods you were renting.

Also check how much you’ll have to pay at the end of the rent to buy agreement to buy the item outright.

Is rent to buy the best option for you?

A rent to buy deal is tempting but be wary of impulse buys and watch out for salespeople who pressure you. Don’t sign anything on the spot.

Explore all your purchasing options. You may be better off saving up to buy the item instead.

If you are on a low income and don’t have the cash to pay upfront, you may be eligible for a no or low interest loan. Talk to Centrelink’s Financial Information Service to see if you are eligible for a special benefit.

Consider lay-by

Lay-by allows you to pay for an item in instalments, but unlike a rent to buy deal, you don’t have to pay interest, fees or charges. You may also get a discount if you pay the instalments in cash. The downside is that you can’t take the item home until you’ve paid it off.

Stay out of debt

If you have trouble making your repayments, contact your lender straight away to discuss your options. Rent to buy may seem like a cheap and easy solution when you need something fast. But be aware of what it will really cost you before you sign up.

This article reproduced with permission of ASIC. Source: MoneySmart website, http://www.moneysmart.gov.au, 28 April 2011'