Should I rent or buy an appliance outright?
The short answer? Don't rent.
A fridge for $40 a week might sound like a good deal compared with the thousand-dollar price tag you're confronted with in-store. But that short-term gain can end up meaning long-term pain.
Need to see for yourself? ASIC has released a calculator that does the maths for you. You can plug in the cost of renting an appliance and the amount of time you plan to rent it for. The results will show you just how much hip-pocket pain you’ll experience by choosing to rent rather than buying outright.
And ASIC is keeping an eye on the sector, having recently cancelled the credit licence of the Victoria business Rent to Own Appliances for imposing fees and charges that added up to interest rates as high as 208%, well above the allowable maximum of 48%.
In a nice little win for consumers, the customers who have been subject to such highway robbery at the hands of this operator will get to keep the goods with no further payments.
Rent to buy vs consumer lease: know the difference
And don’t expect to own that item after you’ve completed your rental agreement. The rent to own/rent to buy options are separate from a consumer lease agreement. A consumer lease is an agreement where you hire household goods, such as electrical appliances and furniture. You receive the item straight away and make regular payments until the term of the agreement finishes.
A consumer lease means at the end of your rental agreement you end up having to give the item back in good order, unless you:
- make an offer to purchase the goods, which may involve paying an additional amount of money (but the lease provider can refuse to sell)
- upgrade to a new model after returning the old, and sign up for a new leasing agreement (which may be at a higher rate than before).
And this is despite having paid more than what it would have cost if you had purchased it outright. Additional fees and charges can apply to a consumer lease such as a cleaning cost at the end of the lease, or failure to pay if you did not make all your rental payments on time.
Low-income earners pay the price
ASIC, using data collected by RMIT and Centrelink released a report which found that many low-income earners were paying high prices over 12- and especially over 48-month leases. In some cases, over five times the retail amount of the goods is charged – or an interest rate equal to 248%!
Erin Turner, CHOICE campaigns manager says, “CHOICE considers these costs go beyond normal business operating expenses and profits into price gouging towards those who can least afford it. This is a business model built to take advantage of people on low incomes, particularly as products are targeted to people on welfare payments through Centrepay.”
See below for a small sample of what it might cost you to outfit a house with some simple entry level items.
Rent vs buy outright
||Rental price total
||Outright cost RRP
||You pay $ more
||% more you pay
|| 48 months
|| 48 months
|Washer 7.0kg FL
|| 48 months
|| 36 months
Table notes: Using prices sourced from Mr Rental and average retail price for a similar sized/specification appliance.
As you can see, in all cases you are paying at least 80% more on top of the original cost. If those rental adverts look attractive to you, you might not be in a financial position to pay the full amount outright. So what other options do you have? Think:
- Personal loans
- Lay by
- No, or low-interest loans
- Low-interest credit cards
and last but not least:
- Online trading sites such as Freecycle that connect you with people giving away consumer items for free.
Do some research to see what suits you.
Want more info on some of these options?
Our compare, ditch and switch microsite helps you choose the best low-interest credit card.
Find out about Freecycle and other trading sites.