Short answer: rent-to-own stores rent you an item with an option to buy it, usually with no down payment or credit check, but the FTC says the price you pay to own it can be two to three times the retail price (FTC). A personal loan charges interest instead, shown as an APR on a disclosure before you sign. Before you choose, compare the total you will pay for the item each way.
How each one works
| Rent-to-own | Personal (installment) loan | |
|---|---|---|
| What you get | The item, rented, with an option to buy it | Money, which you use to buy the item at the cash price |
| Payments | Weekly or monthly rent until you own it or stop | Fixed monthly payments over the term |
| Who owns the item | The store, until you make all the payments or use an early purchase option | You, from the day you buy it |
| If you stop paying | Check the agreement for what happens to the item and to the payments you have made | You still owe the loan; late fees and credit report marks can follow |
| Cost shown as | Rental payments and a total cost to own; ask for it | An APR, finance charge and total of payments |
Rent-to-own terms depend on the agreement and on state law, so read the agreement for the total cost to own, any early purchase option, fees, and what happens if you return the item.
The total cost on a $600 item
Assumptions: an item with a cash price of $600; a rent-to-own plan of $25.00 a week for 52 weeks to own it; and a $600 installment loan at 36% APR for 12 months. The weekly rent and the APR are examples, not quotes.
| Option | Payments | Total paid | Paid above the cash price |
|---|---|---|---|
| Pay cash | One payment | $600.00 | $0.00 |
| Rent-to-own, 52 weeks | 52 payments of $25.00 | $1,300.00 | $700.00 |
| Installment loan, 12 months | 12 payments of $60.28 | $723.36 | $123.36 |
Installment payment: P x r / (1 - (1 + r)-n), with r = APR / 12, rounded to the cent. In this example the rent-to-own total is 2.2 times the cash price, inside the FTC's two to three times range. If the agreement lets you return the item when you choose, you pay only for the weeks you keep it, which can make sense for something you need for a short time.
What the FTC has found
- In an FTC staff survey of rent-to-own customers, customers ended up buying 70% of the merchandise they got through rent-to-own (FTC survey, as summarized in FTC 2011).
- In 2020 a lease-to-own company paid $175 million to settle FTC charges that it led people to believe they would pay the cash price; the FTC said people typically paid about twice the retail price when they paid according to the plans (FTC).
Questions to ask before you sign
The FTC's own checklist (FTC):
- How much will the payments be?
- How long and how much will it take to pay in full?
- Are there other fees or costs, including if you pay off early?
- If you do not get straight answers, walk away.
Compare that total with what a loan would cost. For short repayment of a small purchase see buy now, pay later vs a personal loan, and for how a loan's cost is shown see how to read a loan disclosure.
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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.