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Why Rent-to-Own is a Good Alternative to Credit

By Meg C. Hall


Have you ever needed something right away, such as home furnishings or electronics, but didn’t have the cash to pay for it all up front? If you have a bad credit score or are dealing with situational uncertainty, your options may be limited.

“When one does not have financial resources or access to conventional credit, the alternatives are bleak,” said Michael H. Anderson, professor of finance at the University of Massachusetts Dartmouth.

Anderson, who has done a great deal of research on subprime lending, said that rent-to-own (RTO) contracts can be a good option when credit isn’t available (or when one wants to leave available credit in reserve for emergencies).

Here are six ways RTO can provide value for those who want to skip a credit check:

Immediate access to merchandise

One of the major selling points of rent-to-own is the immediate access to merchandise without needing good credit to get approved. “Indeed, RTO stores typically collect very little personal or financial information and, if the item is in stock, it can be delivered to the customer within a day,” Anderson explained.

If you don’t have a washer and dryer, for example, you may have to make expensive weekly trips to the laundromat. Saving up or making a purchase on layaway doesn’t provide you with access to the item until after it has been paid in full.

RTO arrangements, on the other hand, allow you to use the washer and dryer as you make payments. Furthermore, delivery, setup and service are all typically included in the contract.

“By offering immediate access to household goods for a small periodic payment, this type of arrangement has strong appeal to low-income and financially distressed consumers,” he said.

The option to terminate

Another key benefit of rent-to-own is the flexibility it provides. You can rent the merchandise for as long as you need it, then return the merchandise and cancel the agreement without penalty or further financial obligation.

“Regardless of their credit standing, the option to terminate is key for those with short-term needs for an item due to the transient or unsettled nature of their employment or living situation,” said Anderson.

Payment flexibility

Most stores that offer rent-to-own allow customers to determine how often they will make payments on the merchandise — weekly, biweekly or monthly.

“One interesting aspect of RTO is that the customer often has a choice regarding payment frequency,” Anderson explained. “Thus, consumers can choose to have a payment frequency in sync with their paydays or in line with their planned contract usage.”

Because of this flexible timeline, RTO is a great way to get fast access to an item on a temporary basis without paying full price.

Perhaps you have a relative living with you temporarily who only needs a bedroom set for a couple months, or you’re having a party for the big game and need a bigger TV. With rent-to-own, you can lease these items for a short-term basis at a fraction of the cost of an outright purchase.

Try before you buy

Rent-to-own also provides shoppers with the ability to “test drive” large purchases before committing to payment in full, Anderson said.

For instance, imagine you are debating between two sets of living room furniture. RTO gives you a mechanism for trying out both options for a short period of time before making a purchase, ensuring you’re happy with your selection.

Rent to ownership

Anderson views rent-to-own arrangements as having two parts — regular payments with no long term obligation and rent-to-own benefits like delivery and service.

While renting to own, he explained, “the consumer is effectively given the opportunity to establish or restore a record of financial responsibility.” But the contract also provides a path to ownership via regular renewal payments during a defined ownership plan.

In a pure rental agreement, you are simply paying for use of merchandise for the duration of the contract. With rent-to-own, however, your payments keep you on track toward eventual ownership of the item.

Contract reinstatement

“Another common option is reinstatement,” said Anderson.

If a customer chooses to terminate their rent-to-own agreement — due to financial hardship, for example — they lose access to the merchandise. However, many stores that offer RTO will let the individual reopen the contract and continue the agreement at a later date.

This “allows a customer to resume progress toward ownership,” he said, “with credit given for the payments already made, possibly full credit.”

Because of its flexibility and the added options it provides, rent-to-own can be a great alternative to traditional credit, especially when you’re facing uncertain personal, financial or employment situations.

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