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Rent-to-Own, Lease-to-Own, Layaway, and Buying Over Time

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When you’re shopping for new appliances, furniture, or expensive electronics, a seller might offer different ways to pay for your purchase over time. If you don’t have the cash or credit to pay full price right now, you might consider rent-to-own, layaway, or installment payments. Before you rent or buy under one of these plans, you’ll want to know the terms and conditions — what you have to pay and when, any penalties for late payment, and what to do if there’s a problem. Depending on the type of plan you choose, you could end up paying a lot more for your purchase in the long run.

Understanding Rent-to-Own and Lease-to-Own Plans

Suppose you want to rent a washing machine. If you find one that you like at a store that offers rent-to-own, you’ll sign a contract that renews every week or month. The store may offer different payment plans. For example, you may have a choice to make low weekly or monthly payments for a long time, or higher payments for a short time. If you choose lower payments for a longer time, you’ll pay more to buy the washing machine. You also have the choice to stop making payments at any time, return the appliance to the store, and end the arrangement.

Stores that offer rent-to-own plans often promote what they think are the benefits: no credit check, fast approval, little documentation, and a contract length to meet your monthly budget. But that convenience — getting to use the washing machine while you’re paying it off — can mean that you pay for it two to three times over.

Leasing from a retail store

Some electronics and home improvement stores offer lease-to-own contracts for new items. If you want to pay for something this way, a store may check your credit report and require you to have a bank account or credit card. If it accepts your application, you’ll probably get a 12 month lease. You’ll connect your debit or credit card to your lease, and the store will automatically take regular payments. Your payments cover the cash price of the item plus the cost of lease services. If you pay for 12 months, you might wind up paying twice as much as the item’s retail price. You might be able to change to a shorter pay-off term, but your total payments will still be more than the retail price.

Contract terms

Before you agree to any rent-to-own or lease-to-own purchase, it’s important to get a copy of the contract and review the terms. If a salesperson makes a promise when they talk to you, make sure that promise is included in the written contract. If it isn’t in writing, it will be difficult to make the store keep the promise.

Before you sign the contract, ask plenty of questions and look for information about:

Payments and total cost

  • What’s the total cost of each weekly or monthly payment, including all fees?
  • When are payments due?
  • Is there a penalty if you pay off the balance early?
  • What’s the total cost to own the item?
  • How many weekly or monthly payments do you have to make to own the item?
  • What would the item cost if you paid the full amount today?

Damage and repairs

  • Is the item new or has it been rented before?
  • Do you have to pay if the item is damaged or stolen when you’re renting it?
  • Who pays for repairs if it breaks down?

Late payments and repossession

  • What happens if you miss a payment?
  • Is there a grace period for late payments?
  • If you miss a payment and the store repossess the item, how long do you have to reinstate your payments and the agreement?
  • What charges will you have to pay to reinstate the payments and the agreement and get the item back?

Compare Rent-to-Own, Lease-to-Own, and Buying

Before you sign a rent-to-own or lease-to-own agreement, find out how much it would cost to buy the item. If you can wait for a few months, you could save up money so you could buy instead of renting or leasing. This example compares the costs of renting, leasing, and buying:

4.5 cubic ft. top-load washing machine

Buy from

Pay every month

Save in bank every month

For how long?

You’ll own it in

Total price you pay

Rent-to-own store

$63

0

24 months

2 years

$1,512

Appliance store with lease-to-own

$126

0

12 months

1 year

$1,512

Appliance store with cash

 

$63

12 months

1 year

$759

Using Layaway Plans

If you find something you like in a store, but can’t or don’t want to buy it right now, you could put it on layaway. You’ll pay a deposit to put the item on hold — plus any fee the seller charges — and pay the rest of the cost over time. Keep good records of the payments you make. The seller will give you the item after it’s fully paid for.

Read the layaway policy

Before you put something on layaway, get a copy of the layaway policy. Read it to find out:

  • the cost to use the plan
  • when payments are due
  • the minimum payment required
  • how much time you have to pay the full amount
  • what will happen if you pay late or miss a payment

Check the refund policy

Also learn about the refund policy. What will happen if you make some payments, and then decide you don’t want the merchandise? Sellers may have different policies. Some will give you all your money back, but some will charge a non-refundable service fee.

Buy Now, Pay Later and “Installment Credit” Services

Buy now, pay later services, also called installment credit or “pay over time” services, let you buy things online and in stores without using your credit or debit card at checkout. Instead of choosing your card as the method of payment, you choose the buy now, pay later service. The service pays the seller, and you get the merchandise as usual. You repay the service over the next several weeks through scheduled payments from your debit or credit card. Some services offer payment arrangements for expensive purchases that go on for six months to more than a year.

Learn how the service works

If you’re interested in using a buy now, pay later service, read the terms of service to see how it works. Get answers to questions, including:

  • Will the service run a credit check before you can use it?
  • Are there fees to use the service?
  • Does the service charge interest? If it does, what’s the interest rate?
  • How long will you have to pay off purchase?
  • What happens if you make a late payment or miss a payment?
  • What personal and financial information will the company collect?
  • How will it store your personal and financial information?
  • Where can you use the service? Do your favorite stores accept it?

Where To Get Help

Most states have laws that apply to rent-to-own and lease-to-own transactions. Check with your state attorney general for more information.

To find out if local or state law covers layaway purchases in your state, contact your state attorney general or state and local consumer protection agencies.

If you have a bad experience with a business when you’re making a rent-to-own, lease-to-own, layaway, or other purchase, please tell the FTC at ReportFraud.ftc.gov.