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Rent-to-own rip offs and how to avoid them
Rent-to-own is one of the biggest scams around.
It’s aimed, as far as we can see, at selling to people who can’t afford to buy at crazy, racked-up prices.
Rent-to-own (RTO) firms generally sell furniture, TVs and other household goods like washing machines to low-income households.
The big three are: BrightHouse, PerfectHome and Buy as you View.
You pay a small amount each week or month, spread over one to three years usually, and at the end of the period, you own the item.
A parliamentary investigation published last year calculated between them these customers have over 350,000 households.
The cross-party group of MPs said the regulator, the Financial Conduct Authority (FCA), needed to take urgent action to stop people being “ripped off”.
Here’s what that probe found:
* Interest rates of 94.7% APR (APR takes into account all charges, not just interest).
* Interest and charges that DOUBLE the cost of goods bought normally from a High Street store.
* 25% of BrightHouse customers is falling more than a month behind with payments.
* 22% of RTO customers who get into arrears have goods repossessed – that’s one in ten of all customers.
* Unfair practices in the sector have set off “alarms bells” with the regulator, the Financial Conduct Authority (FCA)
BrightHouse currently advertises on its website: “…we offer a range of finance options, enabling you to spread the cost of purchases into more manageable chunks (Representative APR 99.9% Fixed).”
Here’s what the chair of the parliamentary group, Yvonne Fovargue MP, said about its findings:
“Rent to Own Stores like BrightHouse charge inflated prices to some of the poorest people in the country. Customers are often obliged to take out additional warranties and insurance, as a result paying several times the true value of the goods.
“Many customers simply can’t keep up and the goods are taken back to be sold again.
“RTO firms have been cashing in on people’s financial struggles for more than a decade. The FCA needs to act now to stop RTO customers from being ripped off.
How Rent-to-own works
Let’s say you need a new washing machine, but can’t afford it. You can try to buy one on finance, or hire purchase – sometimes you’ll pay interest for this, because it is basically a loan.
Many mainstream companies offer this to customers, but not to those who are a credit risk.
For many people on low incomes or who are struggling in other ways, RTO may seem like the only choice – why else would anyone pay almost 100% mark up in interest to buy something as everyday as a washing machine?
Step Change Debt Charity found that things were even worse. It quotes this example: a washing machine sold for £295 at Co-Op Electricals cost a £1,092 at BrightHouse once insurance and interest payments were added in.
These companies don’t just charge huge interest rates – far higher than credit cards – but also often add in compulsory insurance and other ‘extras’, which are really nothing more than ways to jack up the overall repayment.
Here’s what we found
We had a quick look to see if we could bag a ‘bargain’ from one of these outfits.
We were shocked by what we found: huge percentage mark ups and giant prices.
At PerfectHome, we picked at random an HP laptop, cost over two years of repayments: £830.
Cost at Currys £379.
A Panasonic microwave, widely available for £199.
Cost at PerfectHome, over 18 months, £319.20.
At Brighthouse we found a Dyson vacuum cleaner available elsewhere for £240.
Cost from Brighhouse over two years, £580.
Or how about a Samsung 70” TV over 156 weeks for a mere £4,056.
Perhaps not so appealing when you can buy the exact same model in the High Street for just £1,599.
What you do instead of being ripped off
If you’re struggling on a low income and you can’t get credit through normal channels, then the micro payments offered by RTO stores can seem appealing.
That TV mentioned above, for example, can be yours for just £26 a week. But the fact is payments spread this way add up to far, far more than the item can be bought for.
And if you don’t or can’t keep up the repayments, remember, the goods will be taken back.
If you don’t fancy paying way over the odds, what are your alternatives.
What are the alternatives to rent-to-own?
1) Do you really need the item? if you can’t afford it, then is it essential that you own it?
2) It might seem old fashioned, but is there any realistic chance of being able to save up? OK, it was just a thought!
3) Credit unions can offer fair-priced loans at rates they’ll check you can afford. Some also offer electrical and household goods via low-cost rent-to-own schemes.
4) Thought about second-hand? This doesn’t usually offer the level of protection you get with a brand new item that comes with a warranty, but it does mean far lower prices.
Some items are even sold with limited warranties and items that have been professionally refurbished can offer excellent value.
It’s a good idea to look for sellers with good reputations on eBay, Gumtree, Facebook selling sites. Also check out Freecycle, which allows members to give and receive items for free.
5) Charities across the UK provide furniture and essential appliances as well as smaller household goods. These items can be very high quality items at extremely reasonable prices.
6) Local welfare. If you’re in financial crisis, councils offer access to essential household items such as cookers and beds. This service, however, is only aimed at people in extreme difficulties.