What are the pros and cons of rent-to-own stores?

Rent-to-own (RTO) stores sell items such as furniture and appliances to consumers on an installment payment basis. RTO agreements usually consist of a rental contract that is renewed on a weekly or monthly basis. Usually, the terms are for 78 weeks or 18 months.

The customer has the option at the end of the rental period of whether to renew the lease or return the item. If the customer chooses to continue renewing the contract, payments continue to be made until the full price is paid at which time ownership of the item is transferred to the consumer.Additional fees may also be charged for late payments, delivery, and insurance.

An advantage of RTO stores is that consumers can get merchandise quickly, often the same day that they walk into a RTO store. Other advantages are low weekly or monthly payments and no credit check, which may benefit those with a poor credit history. Unlike renting of items, the consumer owns the item once the RTO contract is paid in full.

These advantages come at a steep cost, however. Purchasing goods from a RTO store is one of the most expensive methods of ownership. Usually items end up costing three to four times the retail cost when all of the payments are totaled.

For example, if someone pays $13 a week for a television set that costs $250 retail, they would have paid $1,014 at the end of a 78-week contract, which is about four times the retail cost. Customers also face the possibility of having an item repossessed if they fail to make all their payments. In just 20 weeks, someone could have saved $13 a week and paid cash for the television.

Even using a credit card to finance the purchase would probably cost less than what a RTO store would charge. Generally speaking, RTO plans should be avoided, or used sparingly, due to their high cost.

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