Rent-to-own

It’s expensive but popular; what to know before you sign

Consumers in a tight spot or with little credit history might find themselves drawn to the rent-to-own option for big-ticket items, but it pays to think twice. You’ve probably seen the pitch before — get brand-name furniture, appliances and electronics for as little as $19.99 a week. The companies tout low prices, no hassles and instant gratification to cash-strapped consumers. Here are a few things to consider before you sign up:

1 How it works You usually make payments for a fixed introductory period, which can be a few months. After that, you have three options: you can buy the item outright, continue making payments until you own it or return the item to end your lease. If you stop making payments or fall behind, the company you are leasing it from can repossess the object. You don’t have the right to get your money back.

2 You may have cheaper options Rent-to-own may seem cheap, but in practice it is a very expensive type of lending, akin to payday loans or car title loans. The effective annual percentage rates typically run more than 200 percent. Even if you have a troubled credit history or can’t pay the full purchase price for something you want, there can be cheaper options. Store layaway, subprime credit cards and bad-credit personal loans all give you time to pay off the purchase at much lower rates.

3 Before you sign a contract The Federal Trade Commission suggests asking some of these questions before deciding to rent-to-own:

How much are my payments?

When are they due?

What other fees are charged?

What happens if I miss a payment?

4 Once you sign a contract There are several ways you can protect yourself if you've signed a rent-to-own contract. Keep your payment records. Some major rental companies haven’t credited payments properly. Pay on time. Missing a payment, even by a single day, can trigger a deluge of calls from rental companies. The further behind you get, the more aggressive the companies become. Consider negotiating a lower payoff. Debt collectors that acquire unpaid debt from rental companies will typically ask you to pay the “early purchase option” on your contract. But savvy consumers can talk them down to half of that amount paid over multiple months.

This article was provided to The Associated Press by the personal finance website NerdWallet.