Rent-to-own plans

From: Financial Consumer Agency of Canada

What is a rent-to-own plan

Many companies offer rent-to-own plans for purchases such as furniture, appliances, electronics and cars. These plans are also called lease-to-own, rent-to-buy and consumer leases. With this type of plan, you can spread the payment of your purchase over a predetermined period of time.

A rent-to-own plan is typically an agreement for the rental of an item. You will not own the item until you have met the conditions in your rent-to-own agreement. In addition to your monthly payment, you may have to pay fees. These can include an additional amount to pay if you want to purchase the item. If you change your mind, or if you don’t want to purchase the item, you can return it to the company.

Rent-to-own options are also offered for the purchase of a home. These are not the same as rent-to-own plans. They are often referred to as rent-to-own homes.

Who offers rent-to-own plans

Rent-to-own plans are typically offered by companies specializing in the rental of products. These companies usually have a limited inventory and higher purchase prices than retail stores.

Here are a few examples of types of companies offering rent-to-own plans:

  • rent-to-own providers, also known as lease providers
  • car rental companies
  • used car dealerships

How rent-to-own plans work

Here’s what you can expect if you’re considering a rent-to-own plan.

What you need to provide a rent-to-own company

Generally, a rent-to-own company will require proof that you have:

  • a regular income
  • a permanent address

Some companies will also ask you for references.

Making your payments

With a rent-to-own plan, you agree to make regular rental payments. You may be able to make your regular payments online, through your bank or in cash at the store.

Delivery and setup

Many rent-to-own companies include the cost of delivery and setup in the price of the rent-to-own plan. You may have to pay for shipping or other fees if you decide to return an item. Check the terms and conditions of your rent-to-own agreement.

Learn more about what you need to know before you sign a contract.

Condition of the product

Ask your rent-to-own company if the product you are getting is new or used. Some rent-to-own companies may offer products that are slightly used or refurbished. Rent-to-own companies may also offer products that are discontinued and no longer offered by a manufacturer. These products may be more difficult to replace or repair if something goes wrong.

Check your rent-to-own company’s policy on repairs and replacements.

How much rent-to-own plans cost

When buying an item with a rent-to-own plan, you can expect to pay anywhere from 2 to 5 times the regular retail price.

Consider your need for the purchase and whether or not a rent-to-own plan is right for you. Ask yourself if you need the item now, if you can wait or if you need it at all.

You can also consider comparing rent-to-own plans with other purchasing options, such as buying the item outright, using a credit card or a line of credit. This can help you determine if there are cheaper alternatives.

Most retail stores offer other financing options such as a retail credit card or a buy now, pay later plan. These are different from, and may be less expensive, than rent-to-own plans.

Learn more about buy now, pay later plans.

Same-as-cash option

Some rent-to-own companies offer an option called same-as-cash. With this option, you don’t pay additional fees if you pay the full amount within a set amount of days. Typically you have to pay the full amount within 90 or 120 days of your purchase.

The price for an item you purchase with the same-as-cash option may be much higher than the price you would pay at a retail store. This is called a markup. Compare the purchase price of the item you want to buy at a rent-to-own company with similar products offered by retail stores.

How your regular payments are calculated

When you get an item with a rent-to-own plan, the rent-to-own company will give you a quote for a regular payment amount.

To get to this amount, they will usually include in the calculation:

  • the retail price of the item offered with the same-as-cash option
  • any other applicable fees

This amount is divided into equal payments. While the regular payment amount might not seem expensive, consider the total cost before making your purchase. You can calculate the total cost of the purchase by multiplying the regular payment amount by the number of payments in your plan.

Suppose you want to purchase a sofa. The sofa is $800 in a retail store versus $1,350 at a rent-to-own company, if you choose the same-as-cash option. You choose to purchase the sofa on a rent-to-own plan. The rent-to-own company may offer you various monthly payment options, which include fees in addition to the higher price.

For example, they may ask you to pay $22 per week for 104 weeks. In this case the sofa would cost you $2,288.

Figure 1: Comparing the cost of rent-to-own plans with the cost of retail purchases

Figure 1: Comparing the cost of rent-to-own plans with the cost of retail purchases

Figure 1 shows the cost of a rent-to-own plan compared to a retail purchase. The amounts are approximate and have been rounded to the nearest dollar.

Figure 1 – Text version 
Purchase option Total purchase price (not including taxes)
Retail store $800
Same-as-cash $1,350
Rent-to-own plan $2,288

What happens if you can’t make your rent-to-own payments

If you can no longer afford to make your payments, you can return the item to the rent-to-own company. You won’t get back the money you’ve paid.

If you miss a payment, one of the following things will usually happen:

  • the company will take back, or repossess, the item
  • you will have to pay for the item in full to keep it

You may also have to pay a penalty fee for breaking your rent-to-own agreement.

The terms and conditions of your rent-to-own agreement will tell you what will happen if you miss a payment

Pros and cons of rent-to-own plans

Before entering a rent-to-own agreement, compare the pros and cons.

Pros of rent-to-own plans

  • you can buy something you need, like an appliance or furniture, and spread the payment over a period of time to fit your budget
  • you can buy something you may not be able to pay for right away
  • you may get free repairs and/or replacements
  • most companies approve customers who have no credit score or a low credit score
  • making your payments on time may help you improve your credit score

Cons of rent-to-own plans

  • you may pay very high fees on top of the price of the item
  • you need to make your payments on time or you could pay extra fees or could lose the right to purchase the item
  • you might be tempted to take on a debt that you can’t afford
  • it is more expensive than other financing options
  • if you return the item, you may have to pay fees for wear and tear

Make a complaint about your rent-to-own plan

If you have a complaint related to your rent-to-own plan, you should contact the company directly to see if they have a formal complaint-handling process in place.

For more information about what rules apply to companies such as retail stores or to make a complaint, you can also contact your provincial or territorial consumer protection office.

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