Rent to Own - The Pros and Cons

Business finance and Management

Have you ever been in a situation where your fridge stopped working or your TV took its last breath and you didn’t have the cash to repair or replace the item? What if that fridge belonged in your spaza shop and kept all your perishable items fresh, or that TV was the lifeblood of your tavern and your patrons relied on it to watch their favourite sports teams? We have all been in that stressful situation at least once, but modern-day appliances and big-ticket items are not meant to last forever.

In situations like this, these items are more need-to-haves than nice-to-haves, and we certainly cannot afford to allow our businesses to operate without them.

The “rent to own” option of purchasing items has gained strength in South Africa over recent years, and allows us the option to purchase these much-needed items in spite of being short of cash and having not budgeted for repairs and replacements.

The “rent to own” option of purchasing items has gained strength in South Africa over recent years, and allows us the option to purchase these much-needed items in spite of being short of cash.

Let’s take a closer look at the pros and cons of rent to own. You be the judge if this really is the right option for you.

What is rent to own?

Rent to own is a month-to-month contract that allows you to rent a wide range of household appliances, furniture, electronics and even big-ticket items for your tavern or spaza shop, with the option to take ownership of the goods after the predetermined rental period.

When should you consider rent to own?

The rent to own option will work in your favour if you know that your income will increase in the near future. It will also benefit you if you want your tavern or spaza shop to have certain big-ticket items, but you cannot afford to purchase them all at once.

The advantages of rent to own

A major advantage will be the immediate cash benefit of you having to pay smaller portions every month, which may be better for your financial situation at the time. Also, you can test the item over a few months and see if it is really suited to your needs, before making a final purchase. If, at any time, the item stops working or is faulty, you can return it to the rental company, which saves you time and money. If you fulfil your rental agreement by making all your monthly payments, you will end up owning the item when your contract ends.

The disadvantages of rent to own

You can easily end up paying two to three times the cost of what the very same item would cost you had you bought it upfront in the traditional way. Also, rent to own companies make their money from charging interest on items, and you should be wary of the interest rate per item before you make your final decision. If you are late on one of your monthly payments, you might be charged a late payment fee to continue with your original rental agreement.

Before you sign on the dotted line, make sure of the following:

·           Protect yourself and your business by making sure that you only deal with reputable companies when looking for the best rent to own option to suit your pocket and your individual needs. A reputable company will offer you:

o  financial flexibility: the option to cancel your agreement and return the items at any time

o  peace of mind: look for added benefits of maintenance and risk cover being included in your contract for the duration of the rental period.

·           Make sure that the terms and conditions of the contract are understood by both parties – even the smallest details need to be in writing.

·           Most importantly, be completely sure that you are able to afford the monthly instalment for the duration of the time stipulated in your contract.