Rent-to-own vs. Installment loan
| Suppose you want to buy a computer for $1,000. A rent-to-own store is advertising the computer you want for $30 a week. The manager says you will own the computer after 72 weeks. This means you will pay $30/week x 72 weeks = $2,160. The manager also says that if you miss a payment, the store will take the computer back. So even if you've made 60 payments and already paid $1,800, if you miss payment 61, you lose the computer, and you lose $1,800 - even though the computer only cost $1,000. The manager says you can |
return the computer and stop making payments, but you still lose the money you've paid for it up to then.
Now, let's say you purchase the same computer at an electronics store and they give you a 1-year installment loan with an APR of 10%. Your monthly payments on the loan are $91.67. This is less than your monthly payments to the rent-to-own store, which add up to $120 ($30/week x 4 weeks). If you don't absolutely need the |
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| item right away, you could save $30 a week and buy it later. Once you've paid off the loan, it will have cost you $1100.04. This saves you $1,059.96 from what you would have paid the rent-to-own service. Another option to consider, especially if you didn't absolutely need the computer right away, would be to save $30 a week. Then you could buy the computer outright and avoid paying any additional interest or extra charges from a rent-to-own store. |
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