What you need to know about Rent-to-Own products

November 2, 2018

Rent-to-own (RTO) is a form of hire purchase whereby you pay for a product by weekly, fortnightly, or monthly instalments. It’s typically used by people who are unable to purchase products outright, or who cannot obtain credit, with popular RTO items being televisions and white goods such as fridge freezers, cookers, and washing machines.

Companies in this sector have been the subject of criticism in the past, partly due to extortionate rates of interest attached to their agreements. It’s a significant issue that can cause a huge escalation in debt if you fall behind with payments, and consumers have reported unfair treatment by the lender once in arrears with their rent-to-own contract.

Other characteristics of rent-to-own are also worth knowing about before taking on this type of debt. These include potentially high costs for delivery and installation of a product, and how you’re treated if you do fall behind. But first let’s look at the interest rates you might be charged.

Rent-to-own and excessive rates of interest

Rent-to-own companies tend to charge interest rates of around 70% to 99% APR on their goods. A typical RTO agreement lasts between one and three years, which means the price you actually pay for your purchase is far higher than if you’d bought it outright. Once you miss a payment, high charges and fees are applied, placing you into a debt spiral if you don’t act quickly.

Affordability checks

The Financial Conduct Authority has expressed concerns regarding how RTO companies carry out affordability assessments on potential customers. A typical customer base could include low earners, unemployed, and vulnerable individuals, in which case affordability checks should be more stringent than usual to prevent massive indebtedness among this demographic.

Payment arrears

If you fall behind with repayments it can be difficult to avoid serious debt due to the levels of interest applied, and excessive charges/fees. Your contract may allow you to return the item(s) with no penalty and without further payments being required, but you may already have paid a significant sum.

Clarity of pricing

Pricing transparency has been an issue in the rent-to-own sector, so it’s vital that if you’re going to take on this type of credit you check the overall price you’ll pay including delivery, installation, and any warranties or insurance required.


The rent-to-own market is regulated by the Financial Conduct Authority (FCA) which carries out stringent checks on companies operating in the sector. The risk of financially vulnerable people taking on this type of debt is high, and affordability checks are one of the key issues that need to be regulated.

At the end of a rent-to-own contract

What happens at the end of a rent-to-own contract can vary. You may own the product in full, or could be required to make a final payment before ownership passes to you. Alternatively, your lender may allow you to upgrade your purchase by starting a new contract.

Escalating debt

One of the fundamental reasons people are attracted to rent-to-own is the relative ease of borrowing. If repayments fall behind, however, high fees and interest rates cause debts to escalate very quickly and you may feel you need to miss other important payments simply to meet your rent-to-own contract.

Falling behind with payments to other creditors can also cause serious repercussions, however, and it’s important to prioritise your debts correctly. UK Debt can help if you’re struggling to keep up with rent-to-own repayments or other financial obligations.

Our licensed insolvency practitioners will advise on your best options, and offer an initial meeting free-of-charge. Please call to arrange a same-day consultation with one of our expert team.

Joanne Wright

Head Adviser at our Manchester Office

Tel: 0800 001 4247
Email: enquiries@ukdebt.org.uk

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