For many people who can’t afford some basic household items, rent to own shops are often the only answer. But they often charge huge rates of APR, so are they delivering a much needed service or simply ripping people off?
The rent to own sector is a controversial one. Recently the Financial Service Authority found that 2000 customers were given loans they simply couldn’t afford. The FCA have found that some companies have failed to refund payments when contracts were cancelled, charged for insurance before goods were handed over and charged customers for late fees on insurance. The biggest criticism however is that many customers are given loans they simply cannot afford. The example often quoted is the washing machine which cost £358 which ended up costing, after APR, more than £1000. This is because the rates of APR set are so high.
In some cases APR has been set at 94.7%. A further cause for concern is that when customers fail to make payments they have often had the goods repossessed no matter how much they have already paid.
The way the business works is that people can purchase household items and repay then on a weekly or monthly basis with APR added on. Payments are often spread over two to three years. Many people who use these businesses do so because they cannot afford to buy the item outright or simply don’t have the credit to buy elsewhere on cheaper credit agreements.
This has been founded by the actor Michael Sheen and is looking at ways to make rent to own firms act in a fairer way to its customers. They are trying to bring together 50 partners to make lending more fair to people. The Citizen’s Advice Bureau is also very concerned by the rent to own sector. Their biggest concern is that proper affordability checks don’t seem to be done so people who have little anyway just get into more and more debt.
It is difficult if your credit score is low to often get your hand on essential household items like washing machines. So what are the options?
Rent to own can be a good answer as many of these type of stores do not check your credit score. The warning however is that the APR is often very high so first of all be sure you can keep up with weekly and monthly payments and also be aware of what your final payments would be. This can be a very expensive way to get what you want.
This may sound a little old fashioned but it is what people used to do! Save up until you can put a down payment down against an item, your payments will then be less.
These companies act as middle men. You pay them and they help you source the goods. Again, as with the rent to own shops be clear whether you can afford the repayments and interest.
Buying second hand can also be a good and much cheaper option. The issue here is that with electrical goods you have no real comeback if they don’t work but these websites can be a great option for tables, sofas, and other household items.
If you are in debt then the first thing to say is do not ignore it. It won’t go away and will just get worse. You can get help from citizen’s advice, do see them immediately if you are about to be evicted, have received court papers or are expecting bailiffs to visit.
A good starting point if you are getting into debt is to first of all gather all the information about the debt in one place. Try to prioritise your debts and also look at your finances. What comes in each month and what are your outgoings. This will help you decide how you can repay your creditors. Contact your creditors to see if you can agree a repayment schedule with them. Many companies will happily talk to you, it is silence they find more difficult. If you need any help with these processes talk to citizen’s advice and the national debt line. The latter is a free online and phone service which will help advise you on all aspects of debt. The key message is don’t try and ignore your debt, get advice.