Notice of defaults: everything you need to know
Find out which debt solution is right for youGet started
Answer a few simple questions
See if you are suitable
Understand your next steps
Paying for furniture and appliances from rent-to-own stores can often be much more expensive than buying them outright, but what are the alternatives?
Picture the scene … your washing machine or fridge suddenly packs in and it’s weeks before payday. In fact, even if you’d just been paid, you wouldn’t have the cash to fork out for a new one. If you’ve ever found yourself in this situation, rent-to-own stores, such as BrightHouse or PerfectHome, can be tempting as they let you pay for goods in weekly instalments so you don’t have to manage the cost outright. However, you could end up paying well over the odds for furniture or appliances, and if you can’t keep up with the payments, it could lead to debt problems. MPs have recently conducted an inquiry into the rent-to-own sector and have asked the FCA, the UK’s financial watchdog, to clampdown on practices such as possible over-charging and mis-selling of costly insurances.
What to be aware of
The important thing to understand about buying anything from a rent-to-own shop is that it is a form of credit, just like paying for a car on finance. This means that if you don’t keep up the weekly payments, your credit score will be affected and the goods can be repossessed. If you’re already managing several other debt repayments, or if you are already struggling to make ends meet, it may not be advisable to borrow more, as you may not be able to budget for this extra payment. Buying from a rent-to-own store can also be a relatively expensive way to borrow with APRs up to 94.7%.
The MPs’ inquiry found that one in five BrightHouse customers has fallen more than a month behind with their repayments, showing how common it is to get into arrears with rent-to-own stores. This can be a particular problem if you are near the end of your credit agreement … say for example you’ve already repaid £500 for a £600 item. The MPs were concerned that if you then got into financial difficulties and fell behind with the repayments you could still lose the item even though you’d paid the vast majority of the cost.
It’s not just high interest rates that you need to consider when buying from rent-to-own shops, as, according to the MP’s report, high-cost warranties and insurances are often added to the total price as well. According to the inquiry, some of these insurances might have been mis-sold, as the stores often don’t check whether customers actually need it or if it could be covered under a service they already have.
It’s usually much cheaper to save up and buy the goods outright than it would be paying for something through a rent-to-own store, so if it’s a non-essential item, this might be a good idea. If you can afford to put some cash aside to cover weekly repayments, you should be able to put cash aside to build up a savings pot after all. However, if it’s something you really can’t do without quickly, like a cooker or a fridge, there are alternative ways to buy.
The first places you should look at are your local charity shops, as they will often sell second-hand appliances that have been PAT tested in-store, which means they’ve been tested for electrical safety. You can also search for a Furniture Re-Use Network organisation nearby where you live. These are charitable organisations that aim to give everyone access to essential furniture and appliances, and they’ll always be much cheaper than buying new.
It’s also worth having a look at Freecycle or Freegle groups in your area, where people give away anything they don’t want that’s still in good nick. You’ll usually have to pick these up yourself, so if you’re getting a washing machine or fridge from someone, make sure you organise a way to get it safely to your home.
You may be eligible to get help from the government in the form of a Budgeting Loan. These can help you manage the cost of clothing, furniture or other household equipment, and you can get £348 if you’re single, £464 if you’re part of a couple or £812 if you have children. Budgeting loans are only for people on income-related benefits, like Jobseeker’s Allowance or Pension Credit, and you have to have been receiving these benefits for 26 weeks. It’s interest-free so you’ll only have to pay back what you’ve borrowed, and you can have 104 weeks to do so.
If you live in Scotland, the Scottish Welfare Fund (SWF) provides Crisis Grants and Community Care Grants to ensure that people in need can stay living independently, so find out if you’re eligible for one of these.
If you’re already struggling to repay debts to a rent-to-own store, you don’t need to panic. It’s never too late to do something about your problem debts, and speaking to an independent source of advice like the Debt Advisory Centre could be one way to start. You could find out more information about the different debt solutions that may be available to you … for which some fees may be payable … or just find out more about how you could get back in control of your finances.
by Kyri LevendiBack to blog home