Consumers who believe that renting appliances and electronics is cheaper than buying them are in for an unpleasant surprise. A recent investigation made by Consumer Reports revealed that the interest rates of appliance-renting services can go as high as 311 percent, meaning the consumer paid more than three times the price of the item.
Several rental companies were passed through the microscope by Consumer Reports (CR), and the results of the investigation show that people who rent appliances could easily end up paying more than three times the price of an item without owning it at the end of the rental agreement. Also, if the same item would be purchased, consumers would save significant amounts of money.
Consumer Reports Associate Editor, Anthony Giorgianni, said that appliance rentals are especially attractive to low-income families, which don’t have the financial strength to buy the needed appliances and electronics right away. Giorgianni recommends them to postpone purchases to a more convenient time or even try to obtain a small loan to cover the purchase cost.
A case study is a Toshiba laptop worth 612 dollars. One of the rental stores investigated by Consumer Reports offered it for a rental fee of 38.99 dollars weekly with a minimum rental period of 48 weeks. The cost for renting this laptop, not including sales tax and other fees, would be 1,872 dollars. With this amount of money, the renter would be able to purchase three laptops and end up owning all of them at the end of payment, if purchased at the price suggested by the manufacturer. The interest rate for the rental amounts to 311 percent.
The rental option is an expensive one even when compared to credit cards with high-interest rates. If the same laptop was purchased with a credit card at an interest rate of 29.99 percent, by paying 38.99 dollars weekly, the laptop would cost 1,000 dollars less than in the renting scenario, and it would be the consumer’s property in approximately 20 weeks. In this scenario, if the consumer were to wait four months, and save 38.99 dollars every week, he or she would be able to buy the laptop with the savings, paying no interest rate whatsoever and saving a total of 1,260 dollars.
Among the suggested alternative to cover the necessity period without throwing away money at rental shops are borrowing from a friend or using free/cheap public alternatives (such as library computers) until the required amount of money for the purchase is saved or until the consumer is able to secure a retail loan.
According to data from Consumer Reports, Canada and the US have some 8,600 rental stores which generate annual sales of more than seven billion dollars. These stores are attractive because they don’t usually perform credit checks, and rentals are for small periods of time (weekly or monthly basis) but many of them use questionable business practices, on top of the already proven high interest rates.