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Renting To Own Sometimes Doubles The Cost Of Consumer Goods

by Jim ONeil on January 2, 2012

in rent to own

The poorest families in the UK are unable to purchase household items like clothes washers outright. Restricted access to financing from mainstream banks has led them to rent-to-own programs.

The children’s charity Barnado’s recently discovered that many low-income households are paying up to double the going price for basic household goods. These consumers have been told to avoid payday loans but a rent-to-own program may be worse.

Some stores allow financially strapped consumers to purchase electronics, furniture, and appliances on credit with weekly repayments.

In some situations, these establishments set prices hundreds of pounds higher than a high-street mainstream retailer charges.

The charity published a report on this issue, citing how one customer paid £1,074 for a refrigerator-freezer unit under a rent-to-own program with a three-year term. On the high street, this appliance featured a price tag of only £430.

In another case, a rent-to-own store was charging £780 more than a traditional retailer for a Beko washing machine. Many consumers are finding it difficult to secure credit from standard retailers or banks.

The amount of credit being offered has decreased and getting what is available has proven more difficult. Low-income UK households are finding the credit they need from rent-to-own establishments like Buy As You View and Brighthouse.

Many people reported to Barnado’s that they felt forced to use alternative lenders like these rent-to-own companies. These individuals did not have access to a bank that offered direct debit or overdraft features.

Their income level or credit score prevented them from qualifying for cheap loans from these banks. In an ironic twist, those least able to afford high loans APR are paying them, plus higher prices for the actual goods.

There is nothing illegal about the way rent-to-own companies are operating. However, the prices being charged are exorbitant and goods are marketed in a confusing manner.

Not only do some stores charge loans APR as high as 49.9 percent, they set a higher initial price for goods. Consumers have difficulty comparing prices because product model numbers are not displayed.

Barnado’s made eight calls to these retailers requesting model numbers for certain items and each inquiry was refused.

When the researchers were able to compare prices, they discovered that rent-to-own consumers were sometimes paying more for the product, interest, and service coverage plan.

The charity is requesting stricter Office of Fair Trading regulations for rent-to-own lenders. This includes displaying model numbers and prices charged for the same products on high street.

Anne Marie Carrie, chief executive of Barnado’s, said that families must be protected from being pushed deeper in to poverty “unwittingly” by dealing with such lenders.

Ms. Carrie wants the OFT to take action against these “unscrupulous lenders.” She stated that their programs and other types of expensive credit like doorstop lending and payday loans are increasing the problems that low-income UK households face.

It typically costs £112 to pay off a one-year £100 loan through a credit union, £142 for a pawnbroker loan, and £173 for a loan from a rent-to-own company.

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