A Consumer Reports’ investigation found that consumers renting electronics and other appliances from Rent-A-Center and other rent-to-own merchants could pay interest rates of up to 311 percent.

Consumer Reports recently examined offers at several rent-to-own merchants and found that you can easily end up paying two to three times the amount it would cost to buy an item outright from a traditional retailer. CR found deals including a $600 computer that would cost nearly $1,900 after less than a year’s worth of payments and a $1,000 clothes washer/dryer combination costing $2,700 out of pocket after two and half years at an interest rate of 100 percent. 

“For low-income families, rent-to-own deals with low payments for big-ticket items like flat screen TVs may seem enticing, but in the end, they wind up costing much more than buying the item outright,” said Anthony Giorgianni, Associate Editor, Consumer Reports. “If you’re among them, find alternatives, including postponing purchases until you can better afford them.”

The rent-to-own industry has more than four million customers, and its approximately 8,600 stores in the U.S. and Canada generate $7 billion in annual sales. The lure of stores such as Aaron’s and Rent-A-Center is that you can acquire a new or used washing machine, television, or bedroom set right away, typically without a credit check and with relatively low weekly or monthly payments.

The agreement is generally on a week-to-week or month-to-month basis, and you can return an item and walk away without penalty and without damaging your credit score, as you would if you were late on a traditional loan payment. If you make all your payments, you’ll own the item at the end of the term. But of course, there’s a downside.

Some rent-to-own stores have also been accused of engaging in questionable business practices including aggressive collection tactics, failing to disclose prior damage to rented property, and instructing employees to begin collection calls before the actual due date of the first payment. Concerns about industry practices have led most states to regulate the industry, with the rent-to-own industry itself endorsing some laws. Most of the statutes mandate disclosures, prohibit unreasonable fees and the imposition of mandatory property damage or loss insurance, and give customers who miss payments the right to reinstate an agreement with in certain periods.

Behind the numbers
Consider the deal for a $612 Toshiba laptop computer CR found at one rent-to-own store being offered at $38.99 a week for 48 weeks, for a total of $1,872, excluding sales tax and other charges. That’s the same as buying the laptop at the manufacturer’s suggested retail price and financing it at an interest rate of 311 percent. You could buy three of the laptops outright for that $1,872.

Even a high-interest rate credit card is a better option than rent-to-own. If you were to finance the laptop at 29.99 percent, among the highest credit card rates CR could find, and pay the same $38.99 a week, you’d end saving more than $1,000 compared to the rent-to-own scenario and own the laptop in about 20 weeks, instead of 48. Even better, if you put that $38.99 in the bank every week, you would have to wait only four months to buy the laptop and save $1,260.

Another good reason to avoid rent-to-own shopping: Even if you were to exercise the early-purchase or same-as-cash option under the rent-to-own agreement there’s a good chance you’d pay more because the “cash price” at rent-to-own stores often is higher than at other retailers.

Alternatives to rent-to-own shopping
Paying twice the market price or more for an item rarely makes sense. If you can afford the weekly or monthly payment of a rent-to-own agreement, consider saving that amount instead. You’ll end up owning the item sooner, you’ll pay for less, and you might even earn a little interest. Avoid the temptation for instant gratification for items you might not need right away, such as a big-screen TV that replaces your existing working model.

If it’s a necessary item, such as a computer for school or work, look for alternatives until you can save the cash, such as borrowing one from a friend or neighbor, or using computers at a public library.

Another option is finding out whether you qualify for retailer financing. Many stores offer zero-payment, zero-interest financing. But interest accrues during the no-payment period and you’ll be on the hook for it if you can’t pay for the item by the end of the no-payment period. So if you use this option, set aside a certain amount every week to cover the eventual payment.