Are you looking to furnish your home, but are strapped for cash? Or maybe you have poor credit and don’t qualify for a low-interest loan to help you buy the items you need. If so, you may have considered renting furniture as an option.
Under a furniture rental plan, you make small, fixed payments over time rather than settling the entire bill at once. As a result, there’s far less strain on your budget – and you get to take home the furniture right away, too.
Sounds like a solid deal, right? However, the truth is that this payment method can cost you a bundle of money in the long run. The inflated markup, fixed lease payments, and fees make renting furniture an expensive way to furnish your living space. In this guide, we’ll show you how furniture lease agreements work and how much you can expect to pay.
How renting furniture works
Leased or rent-to-own furniture is an agreement that allows you to acquire furniture by making periodic payments over time instead of footing the entire bill upfront.
The process is straightforward: First, you choose the furniture you need from a store that offers lease or rent-to-own options. Then, you sign an agreement to pay the total price over a specific period in fixed payments. These payments are usually made weekly, bi-weekly, or monthly; terms can last between one and five years. The minimum qualification requirements include a stable income and a permanent address.
Typically, these agreements also provide the option to purchase the item outright at the end of the term (hence the term “rent-to-own”) by paying a lump sum. Some contracts also include a “buyout clause,” which gives you the right to pay off the remaining balance early and take ownership of the furniture.
As a consumer, there are plenty of options in Canada for renting furniture. Some notable rent-to-own companies include Rental City, Smart Choice, Aaron’s, and Easyhome. Besides furniture, rent-to-own contracts are available for appliances, computers, TVs, and various electronics.
Why rent-to-own furniture is so appealing
Renting furniture comes with many advantages:
- Affordable for low-income individuals. Renting furniture spreads your costs over time, which makes it an accessible option if you have a restrictive budget due to a low income. As a bonus, furniture leasing companies usually don’t ask for a down payment, so you don’t need to save up any money to get started.
- Accessible for individuals with low or no credit. Many rent-to-own companies don’t perform a credit check when assessing applications and don’t require a down payment. Even if they do, their standards are much lower than those of traditional lenders. This is good news if your credit is in rough shape or you lack a credit history entirely.
- Flexibility to return the furniture. A rent-to-own agreement usually allows you to return the furniture to the store if you no longer need it or can’t afford to buy it.
- Easy way to update a home. Not fond of your home’s current style? If so, renting furniture makes giving your property a makeover easier and cheaper. Instead of saving a small fortune to acquire new high-end furnishings, you pay a weekly fee to acquire new ones according to your needs and preferences.
- Great for lowering moving costs. If you move around frequently, renting furniture lets you keep more money in your bank account. Since you’ll leave the items behind each time you move out, you’ll spend less on packing and shipping.
The financial dangers of renting furniture
Despite the enticing benefits, renting furniture has several drawbacks, most of which can hurt your wallet.
High long-term cost
The most significant downside of leased furniture is the high price tag. Rent-to-own companies tend to charge high prices for the items in their inventory. As a customer, you can pay two to five times the average retail price.
To show you the stark differences in price, we did a small online investigation:
We found a sofa/love seat combination at a major rent-to-own store near Scarborough. The agreement asked for weekly payments of $19 for 156 weeks (three years), which works out to a cost of $2,964 + taxes. After a quick online search, we found the same sofa/loveseat combination at a regular retailer for $1,567 + taxes.
Here’s a breakdown of the price difference between the two options:
- Rent-to-own company: $2,964 + $385 (HST) = $3,349
- Regular retail company: $1,567 + $204 (HST) = $1,771
So, in this case, you would pay an extra $1,578 ($3,349 – $1,771) for the same furniture! That’s a little more than double the standard retail price.
Note: $1,567 was the regular price at the online retailer. When we checked the sofa/loveseat combination, it was actually on sale for $1,205, which means you could have saved even more money!
Unfortunately, it’s hard to notice this inflated cost when you’re paying when you’re making tiny monthly payments over a long period. That’s the trap many people fall into when opting to rent their furniture.
Therefore, always examine a furniture lease agreement’s APR (annual percentage rate) before signing the dotted line. The APR is the total cost you pay to acquire the item after including all fees, expressed as a simple interest rate. This number reveals the true cost of a rent-to-own plan.
Our research found that APRs on leased furniture can range from 30% to 47%, which is quite steep and definitely higher than the typical credit card or line of credit.
Hidden fees
Besides the hefty markup, leased furniture companies may charge several fees. These costs further increase an item’s already inflated price. Some examples are delivery fees, setup fees, insurance fees, and late payment fees. You may also have to pay wear and tear fees if you return or damage the furniture. And in some cases, the furniture provider may charge you an upfront fee if you want to buy the item at a future date.
Unfavourable buyout terms
Some companies charge a steep price for customers who aim to purchase the leased furniture. Therefore, if you intend to own the item, always calculate the buyout price to ensure you can afford it.
Repossession risk
As with a secured loan, the furniture you rent is collateral for the payments under a rent-to-own plan. That means if you fall behind on your payments, the furniture leasing company can seize the item. Remember: until you make your final payment, the leasing company legally owns the furniture.
Rent-to-own alternatives: cheaper ways to get the furniture you need
Given the excessive costs, it pays to look for alternative options for renting furniture. Here are some budget-friendly ideas to consider:
Use a credit card or line of credit. Credit cards and lines of credit are often the culprits behind many people’s debt problems. However, when used responsibly, they can be cheaper solutions for financing furniture purchases than a rent-to-own agreement. For example, an average credit card APR is 19.99%, while a rent-to-own agreement can charge 29.99% or more. Remember: only borrow what you can afford to repay on time to avoid harming your credit score and drowning in interest.
Shop at discount retailers. You don’t need to spend a bundle of money to live comfortably. If you can’t afford high-end furniture, start modestly. Some well-known places to find affordable furniture include Home Sense, IKEA, Costco, Cozey, and Payless Furniture. When you’re ready to upgrade your furnishings, you can sell the ones you own to recoup some of your money.
Browse online marketplaces. Check out online marketplaces like Facebook marketplace and Kijiji for deals on new and used furniture in your area. If you’re not picky, you can land great deals. You may even get some items for free.
Buy on layaway. This payment method works well if you don’t need the furniture immediately. Under a layaway plan, you pay the store a deposit on the item and then pay off the remaining balance over time in installments. Once your payment covers the total cost, you take possession of the furniture. Since you’re not borrowing money, you don’t pay interest. However, layaway plans come with fees and missing a payment can cancel your reserved furniture.
H2: Do rent-to-own furniture companies report payments to credit bureaus?
Rent-to-own furniture companies may or may not report your payments to credit bureaus, depending on their policy. For example, Easyhome reports payments provided you make them and don’t default on your agreement. Conversely, Aaron’s doesn’t report payments, regardless of whether you pay on time or late.
The bottom line on renting furniture
Renting furniture works best as a short-term fix for your furniture needs. If you’re not ready to commit to a purchase or have temporary budgetary constraints, entering a lease agreement can be beneficial. It’s also convenient if you plan to move around a lot as you can leave the furniture behind.
But besides those reasons, renting furniture will cost you more than buying the items outright. If you have a tight budget and low credit score, you’re better off purchasing discounted furniture or finding other ways to get what you need.
If you decide to lease furniture, ensure you’re dealing with a reputable provider. Review the rental agreement for hidden fees and make sure you understand the buyout pricing terms. Calculate the APR and compare it with other financing options to see if you’re getting a worthy deal.
Check out these articles for more tips on saving money and managing your debt:
- DIY Debt Relief Strategies: 10 Ways to Get Your Finances in Order
- 10 Bills You Can Negotiate to Reduce Your Household Expenses
- How to Manage Debt When Living Paycheque to Paycheque
