Factsheet: Rent to buy
ONLINE TEXT VERSION - August 2011
You've probably seen advertisements in
newspapers or on television for 'rent to buy' deals that encourage
you to sign up now and have a computer, electrical appliance or
other household goods delivered tomorrow.
If you're short on cash, such deals might seem an attractive
But it pays to stop and think before shopping this way - you'll
usually pay more with this kind of credit arrangement.
Brian ended up with a dud deal
When Brian's fridge broke down, he couldn't afford a new one. So
he signed up to a rent to buy scheme, aiming to buy the fridge with
monthly rental payments. But Brian signed the contract without
reading it properly.
After 18 months of making payments, Brian was told by the
company that to buy the fridge he would have to pay an extra $532
on top of what he'd already paid. All up, Brian paid the value of
his second-hand fridge many times over - much more than the price
of a new one.
How does rent to buy work?
- With rent to buy, you agree to rent an
item (for example, a fridge or television) for a period of time.
You make regular rental payments, for example, every month over 3
- You are not hiring the goods but you are making
a commitment to buy them. At the end of
the rental period, you pay a nominal amount to finalise the
- While the store may promote this as a more affordable option
than buying an item outright, chances are you'll end
up paying more. For example, your total
rental payments almost always add up to more than the cash price of
the item - sometimes a lot more. You may also have to pay fees and
charges on top of this. It can easily become more expensive than
buying the goods outright with other forms of credit, including
no-interest loans (for details, see 'Six steps to smarter
borrowing' on pages 3-4).
TIP: Watch out for these hidden traps
Check your ownership
- With a rent to buy contract you own the goods from the
beginning of the contract. You also owe a debt to the supplier of
the goods (the credit provider) who will take a bill of sale or
mortgage over the goods you have purchased.
- There are different types of contracts with differing terms so
check with the supplier to find out if you have the right or
obligation to purchase. Don't rely on the salesperson's
explanation, check the written contract.
You are responsible if the item is damaged or
- Even if an item is damaged, stolen or destroyed, you still have
to keep making the payments, as set out in your agreement.
- So you need to think about taking out
insurance to cover the replacement cost of the
item. Sometimes this is a condition of signing the agreement.
Terms and conditions can be complicated
- If you do decide to go ahead with a rental agreement, make sure
you know exactly what you're getting into. For example, you may be
charged account-keeping fees as well as penalties
if you miss repayments, break the agreement or pay it off
- Make sure you check all the terms and
conditions before you sign anything. Often the penalty for
breaking an agreement is that you still have to repay an amount
equal to the rental payments for the full term of the agreement,
even though you have given back the goods you were renting.
Renting may not be the best way to buy
- Beware of impulse buys and watch out for high-pressure
salespeople. Take the time to explore all your purchasing options
first. You may be better off waiting a while and saving up for the
- Consider lay-by. This option may not be widely
promoted, but is usually available if you ask for it. With lay-by,
you pay off your purchase in instalments, with no extra fees or
charges. Of course, you have to wait until you've paid it off in
full before taking your purchase home, but you will save a lot of
money in fees and avoid getting hit with hefty interest
- If you still want to go ahead with renting, shop
around for the best price on the goods and the best terms
on the rental agreement.
Six steps to smarter borrowing
Work out if you can afford to borrow
- Before you decide to take up a rent to buy option, use
planner. This will help you see exactly where
you spend your money and how much you can afford in
- Think about whether you can save up the money for the item, or
put it on lay-by. By using lay-by you won't pay interest or fees,
so it will cost you less. You may also get a discount if you pay in
- Alternatively, see if there are other cheaper forms of credit
- If you're on a low income, you may qualify for a loan through
the No Interest Loan Scheme (NILS®), which offers
small loans for specific purposes, like buying a fridge or washing
machine. To find your nearest provider, visit www.goodshepherdmicrofinance.org.au
or call ASIC's Infoline on 1300 300 630.
- Read our factsheets Consumer leases and No or
Shop around for the best deal
- If you decide to go ahead with a rent to buy arrangement, make
sure you know exactly what you're getting into. Just as you would
shop around for the item itself, shop around to get the best deal
- Check the total amount you will pay for the
item if you rent it - it may turn out to be too expensive.
- Take time to compare fees and charges. Even a
small difference in rental or fees can make a big difference to
what you have to pay.
- Research published by the independent consumer group CHOICE can
help you find the right product for your needs and budget - see
- If you are considering taking out a loan, work out the effects
of different choices using our multi-loan calculator.
Know who and what you're dealing with
- Ask questions about the terms and conditions
of the rental agreement so you know what you're getting into. Find
out if there are penalties for missed repayments or paying off the
- Anyone who wants to engage in credit activities
(including brokers) must be licensed with ASIC
or be an authorised representative of someone who is
licensed. If they aren't, they are operating illegally.
- There is currently an exemption from licensing for credit
assistance provided through some businesses (for example,
retail stores and car yards). While the store may be exempt, the
actual credit provider must still be licensed. If you are unsure
who the credit provider is, ask the person you are dealing with to
point out the name in your credit contract.
- To find out if a credit provider is licensed or call ASIC's Infoline on 1300 300
- Anyone engaging in credit activities (for example, by providing
credit or assistance to you) must give you either a credit
guide (with information such as their licence number, fees
and details of your right to complain) or a written notice with
details of your right to complain about their activities.
Keep up with your repayments
- Keep up your repayments, to avoid being hit with penalty fees
for missed or late payments.
Get help if you can't pay your debts
- Act quickly if you are having trouble making
repayments. It may be difficult to face the problem, but ignoring
it will only make things worse.
- If you can't make the full repayment, pay what you can. Contact
your provider without delay.
- If you are experiencing financial difficulties, you may have
the right to apply to a provider for a hardship
variation. If the provider refuses, you can complain to
its independent dispute resolution scheme for a variation on the
grounds of hardship (see step 6 below).
- There are places you can go to seek help - visit MoneySmarts sample letters and information about
support services such as financial counselling and legal
assistance, call the National Debt Helpline on 1800 007 007 or call
ASIC's Infoline on 1300 300 630.
- See our factsheet Can't pay your
Complain if things go wrong
- Try to resolve your problem with your credit provider
- If you aren't satisfied, take your complaint to your provider's
independent dispute resolution scheme. This will
be either the Financial Ombudsman Service (FOS) at www.fos.org.au or the Credit and
Investments Ombudsman (CIO) at www.cio.org.au. Both schemes can be reached
by calling 1800 367 287.
- If you think that a credit provider has acted unlawfully or in
a misleading way, you can complain to ASIC online at
www.asic.gov.au or call ASIC's Infoline on 1300 300 630.
ASIC Infoline: 1300 300 630
Disclaimer: Please note that this is a summary
giving you basic information about a particular topic. It does not
cover the whole of the relevant law regarding that topic, and it is
not a substitute for professional advice.
© Australian Securities and Investments Commission 2011
Last updated: 10 Feb 2017