Rent-to-own

What It Means

(1) For goods such as furniture, appliances and electronics, rent-to-own is a lease: you sign a contract, take the item home, and make weekly or monthly payments to the store or an outside company. The Federal Trade Commission (FTC) has described these as self-renewing leases you can stop at the end of any payment period, with ownership coming after you've paid for the full term, usually 12 to 24 months, or through an early purchase. (2) The same name is used for rent-to-own home deals, a separate kind of arrangement the FTC covers in its own consumer alert.

How It Sounds at Home

• "We got the couch from a rent-to-own place, twenty-five a week."
• "How many more payments until the TV is ours?"
• "They'll come pick it up if we miss a week."

The Breakdown

Worked example. A TV with a $650 cash price, rented at an example $25 a week for 52 weeks:

What the result means. In this example renting to own costs twice the cash price, the same ratio the FTC warns some plans reach. The payment looks small because the term is long: the FTC notes a longer contract lowers each payment but raises what you pay in total through markups and fees. Stopping part way means returning the item, and the payments already made stay with the company.

Where it goes wrong. A family takes a couch home for a low weekly payment, falls behind after a tight month, and loses both the couch and what they'd paid. The FTC warns that a missed paymentLate paymentA payment that reaches the lender after its due date; on credit reports, one that's 30 days or more past due. See more can cost you the item and all the money paid toward it, and that the company may report your payments to the credit bureausCredit bureauA company that collects information about how people use credit and sells it as credit reports; Equifax, Experian and TransUnion are the three nationwide ones. See more.

Good to Know

Before you sign, add up every payment and every fee and compare the total with the cash price; the FTC warns that with some plans you might pay twice as much. Ask for the early purchase terms in writing; the FTC has described leases that let you buy early by paying a set share of the payments still due. In April 2020, Progressive Leasing agreed to pay $175 million to settle FTC charges that it deceived consumers about the pricing of its rent-to-own payment plans. For a rent-to-own home deal, read the FTC's separate consumer alert on those arrangements.

Related Terms and Categories

• Layaway

  A store payment plan that holds an item for you while you pay for it in installments; you take it home only after it's paid in full.

• Buy now pay later

  A short-term loan at checkout that splits a purchase into a few payments, most often four interest-free installments with the first due when you buy.

• Payday loan

  A small, short-term, high-cost loan, generally $500 or less, that's usually due in one payment on your next payday.

• Sinking fund

  Money set aside in small, regular amounts for a known future cost, so the bill doesn't land on a single paycheck.

• Credit report

  A record of how you've borrowed and repaid, kept by credit bureaus and sold to lenders, landlords, insurers and others who decide whether to deal with you.

• Impulse spending

  Buying something on the spur of the moment, without planning for it or checking it against your budget.

Household money and budgeting