When it comes to buying big-ticket items like furniture and appliances, ‘pay no interest for six months!’ promotions from big box stores are hard to resist – and may even be good value, providing you have the money to pay things off six months later.
But don’t confuse such layaway deals with the offerings from rent-to-own stores like Easyhome and Aaron’s, which are aimed largely at pay-by-the-week low-income households.
It’s an easy sell: you take the furniture or appliance home and make small lease payments rather than footing the entire purchase price at once. Buyers know they’re paying more than the item is worth – although the size of the mark up seems to come as a surprise to many – but feel, largely because of poor credit, that they have little choice.
Also read: Is Rent-to-Own Housing Ever a Good Idea?>
Why Pay More Than It’s Worth?
That’s what happened to Quebec homemaker Paula Dnistrianskyj when she signed up for a fairly basic refrigerator from Easyhome, paying $21 a week on a three-year contract. At that rate, the appliance will end up costing her about $3,300, even though it sells for less than a third of that at several retailers.
The same goes for her flat-screen television. She’s paying $22 per week over the course of two years, for a total of $2,112 – even though the same set can be had for as little as $599 at a big box outlet.
Expensive? You bet – but neither illegal or uncommon. You’ll find rent-to-own outlets in just about every major Canadian city.
Canadian Regulators Slow To Act
Several U.S. jurisdictions have enacted laws to protect rent-to-own customers by requiring more transparent advertising and, in some instances, actual price controls.
Many states, for instance, require a price breakdown so that customers can see the total cost of a 12- or 18-month term – but you won’t see that in any Canadian ads. In fact, no province has specific rent-to-own legislation in place although, in Ontario at least, leases like these do fall under the province’s Consumer Protection Act.
Ontario businesses offering leases must provide a written disclosure statement that includes the length of the lease term; the amount, the timing and number of payments to be made; and the implicit finance charge, sometimes called the total cost of borrowing annual percentage rate (APR).
Compare Underlying APR Before Buying
This disclosure statement is supposed to be made available to you before you sign the lease or make any payment. Pay particular attention to the APR since it tallies the costs of borrowing and expresses them as a simple annual percentage. In Dnistrianskyj’s case, that number was a whopping 29.9 per cent – significantly higher than most major credit cards.
Focusing on this number makes it easier for you to understand the cost of your lease, and lets you compare it with other financing options, such as a loan, to determine your best option.
Learn To Use Credit Wisely
Think twice before you go this route in the first place though, warns Gail Vaz-Oxlade, a TV host and author who’s made a career out of scolding people who can’t seem to stop buying things they really can’t afford. For instance,
- Always factor finance costs into the cost of a consumer purchase
- Never finance any item that’s consumed immediately (i.e. dinner, vacations, etc.)
- Buying consumer goods (i.e. TVs, tablets, etc.) won’t improve your net worth because they depreciate
- Debt used to finance consumer purchases should be repaid before you stop enjoying the benefit