Jeanette A. Tucker | 7/18/2008 12:56:55 AM
Rent-to-own purchase contracts are popular. Their appeal is great – quick delivery with no down payment, low weekly payment with no credit check and no penalty for discontinuing the contract. Rent-to-own contracts are technically rental-purchase agreements. These contracts allow you to rent merchandise. For example, you can rent a television set by the week or by the month. Eventually, if you make enough payments you will own the TV. But if you miss a payment, a rental-purchase agreement requires you to promptly return the TV to the rental store. If you only want to use furniture or appliances for a few weeks or months, renting may be for you. BUT if your goal is to own the item, those low weekly payments can add up to a high total cost. If you miss a payment, the item can be repossessed. Then you have nothing to show for the payments you have made.
???Ask Before You Rent
Before you enter into a rent-to-own agreement or any contract, get answers to the following questions:
$ How much are your payments?
$ When are they due?
$ How many rental payments are you required to make?
Rent-to-own agreements may require you to make a specific number of rental payments before you can return the merchandise. If you want to return the item early, then you may have to pay a penalty.
Each rent-to-own store decides the length of the minimum rental period. The only way to be sure about a rental store’s policy is to check the contract before you sign it. One store may allow you to rent an item for a week, another for two weeks and a third rental store may insist you keep the item for a month.
An advantage of rent-to-own contracts is that after the required minimum time period, you can simply return the item without a penalty or further payments due.
Louisiana law requires the rent-to-own store to inform the consumer of the total number, the total amount and timing of all payments necessary for ownership.
$ What other fees or charges are part of the contract?
Louisiana law requires that all extra charges must be stated in the contract. Read your rent-to-own contract carefully! Handling fees or service charges increase your total cost. Some rental stores may require you to purchase insurance on the rented item.
$ What is the total dollar cost to own the item?
To check the total dollar cost, first multiply the number of payments required times the amount of each payment. Then add any extra handling fees or service charges to that amount. For example, if your contract requires you to make 12 payments of $20 each, and there is a $15 handling fee, then –
Number of payments: 12
Amount of payment: $20.00
Handling fee: $15.00
To Figure Your Total Cost:
12 payments x $20 = $240.00
Add handling fee +15.00
TOTAL COST $255.00
In this example, you must pay $255.00 before the rented merchandise belongs to you.
$ When do you own the merchandise?
In a rent-to-own contract, you will not own the merchandise UNTIL you have made ALL of your payments.
$ Is the merchandise new or used?
Your rental contract must tell you whether the merchandise is new or used. If you are planning to eventually own the item, you will want to get the most use from it.
$ Are you responsible for loss or damage to the merchandise?
The contract must state if you are liable for loss or damages to the rented item. It should also state that the consumer is responsible for the fair market value of the property as of the time it is lost, stolen, damaged or destroyed.
The contract should include information on how you get an item repaired and who is responsible for the repair bills. Does the store provide a substitute at no extra charge while repairs are being made?
$ Is there a grace period for a late payment?
A grace period is the amount of time you have to get your late payment to the bank or the store before you have to pay a penalty or return the merchandise. Check your rent-to-own contract to see if a grace period is allowed for late payment.
Schedule your rental payments around payday. If you miss a payment, the rental store has the right to repossess their merchandise. If a financial emergency arises, you may find you are out of luck.
$ How do you reinstate a rent-to-own contract?
Guard your right to reinstate your rent-to-own contract. If you have made a substantial investment toward owning the item, you don’t want it repossessed and gone for good.
Reinstatement means that within a specific time period, you have the right to pay all late payments. You will also have to pay all other charges to prevent your losing any rights or investments you have in the rental merchandise. Your right to reinstate your rent-to-own contract exists even if the merchandise has been repossessed.
In Louisiana, you can reinstate your rent-to-own contract within five days of the renewal date if you pay monthly or within two days of the renewal date if you pay more frequently. Reinstatement is made by paying the past due rental charges, the late fees, any applicable pick-up and delivery charges and any reinstatement fees.
If the consumer has paid less than two-thirds of the total payments necessary for ownership and has voluntarily returned or surrendered the property during the reinstatement period, the right to reinstate is extended to 21 days after the date the property is returned. If the consumer has paid two-thirds or more of the total payments necessary for ownership and has returned or voluntarily surrendered the property during the reinstatement period, the consumer may reinstate the agreement during a period of 45 days after the return of the property. These extensions apply only if there is no judicial process. Upon reinstatement, the store is not required to return the same item you were renting. They can substitute merchandise of comparable quality and condition.
Rent-to-Own Contracts and Retail Installment Contracts: What Is the Difference?
Don’t confuse rent-to-own contracts with installment contracts. With a rental purchase or rent-to-own contract, you are leasing or renting, not buying. You are paying for the use of the item for a certain time period. You are not obligated to continue payments and become the owner. When you are finished renting an item, you no longer have to make payments. But if you choose to make enough payments, you will own the item.
With a retail installment contract, you are buying an item with a specified number of periodic payments. You are required to pay more than the cash price because it takes longer for the store to collect the full price of the item.
The installment contract spells out the Annual Percentage Rate (APR) and the finance charge ($). The APR tells you the interest rate you are charged on the loan. The finance charge is the total cost in dollars of the interest charges. The installment contract also states the following: 1) monthly payment; 2) total installment purchase price (monthly payments times how many payments you must make); and 3) cash sale price. Part of each monthly payment is used to pay interest on the loan and part is used to pay off the principal (balance due on your loan).
When you buy furniture, appliances, or automobiles, read your retail installment contract carefully. In most cases, you will not own the item until the last payment has been made. If you do not make ALL of your payments, the merchant may have the legal right to repossess any item and sell the item to recover the amount due. If the merchant cannot recover the amount due, you may be legally obligated for the balance of the loan, even though you no longer have use of the merchandise. If there is any surplus from the sale, you are legally entitled to that amount.
Before you sign any contract, shop around. Compare the costs of buying an item if you:
• Use rent-to-own.
• Use installment credit.
• Pay cash.
Louisiana Rental-Purchase Agreement Act. R.S. 9:3351 - 3362.
Bannister, R., Credit: Tool or Trap,
Ypsilanti, MI: Michigan Consumer
Education Center, College of Education, Eastern Michigan University, 1989.