Rent-to-own (RTO) lenders allow customers to pay weekly or monthly for a product, usually household appliances or furniture. Then at the end of the term, they can either purchase the item, return it or upgrade it. The interest rates on products can be anything from 38% up to 100% APR!
RTO lenders such as Brighthouse, Perfect Homes and Buy As You View are aimed at people living on a low income. It’s particularly useful for those who either might not have the cash available to purchase their home appliances outright or their credit score is too low for a finance agreement from a high street store.
Do You Own Your Rent to Own Item?
Depending on your agreement with the lender, at the end of your agreement term, you will either own the item outright, return the item or upgrade the item and renew the agreement. Often, due to the high interest rates and fees, there is still a lump sum payment to be made to own the item at the end of the contract. This means that you will have paid a lot more than the item is worth to keep it.
The Interest Rates and The October 2019 FCA Announcement
In the past, interest rates and fees on rent-to-own items have been as high as 150% of the item’s value! This has meant that on an item valued at £500, a customer would end up paying £1250 to own it at the end of the agreement. Seems shocking, right? Well, the Financial Conduct Authority agreed and in March 2019, they set out some new rules.
These new rules included:
- Setting a total credit cap of 100%;
- Introducing a requirement on firms to benchmark base prices (including delivery and installation) against the fees charged by three mainstream retailers; and
- Prohibiting RTO retailers from increasing their prices for insurance premiums (e.g. theft and accidental damage cover), extended warranties, or arrears charges to recoup lost revenue from the price cap.
These rules mean that the £500 item we talked about earlier can cost no more than £1000, including all fees and charges. This is still a huge amount of money to pay for an item but the cap will likely be reviewed again by the FCA and it encourages RTO retailers to lower their rates in the meantime.
What Happens If You Fail to Meet Repayments?
Failing to meet the repayments of a rent-to-own retailer has similar repercussions to any other lender. If the default is within a certain time frame, some RTO retailers can repossess the goods but most would need a Return of Goods Order from the court, so they would likely opt to recover payment for the item.
If the lender fails to recover money owed to them through the usual methods of phone calls and letters, they will likely seek the help of a debt collection agency or bailiff. If they still do not receive repayment, they may even apply to the courts for a County Court Judgement (CCJ). You can read all about debt collection in the Debt Help section of our website.
Do You Think You’ve Been Missold?
If you feel as though you have been mis-sold by a rent-to-own retailer, it is important to make an official complaint as soon as possible. Misselling can include not checking affordability correctly, so the customer falls behind on payments regularly through no fault of their own. It also includes the addition of insurance or payment protection insurances (PPI) without the knowledge or proper consent of the customer.
Such complaints were made in droves to Brighthouse, the UK’s largest rent to own retailer. The Financial Conduct Authority ruled in the customers’ favour and Brighthouse was ordered to refund customers with an additional 8% in compensation. However, the company was crippled by the process and has since gone into administration.
What If the Rent-to-Own Retailer Goes into Administration?
If you owe Brighthouse money or owe money to any company that is at risk of going into administration, you must keep paying your existing repayments and adhere to the terms and conditions of your agreement. It is highly unlikely that your debt will be written off automatically.
If the business goes into administration, your payments will be overseen by the Administrators. If you get behind on your repayments, you will likely face further interest and charges on your balance. It may also affect your credit score.
If you already have a mis-selling claim open against a company like Brighthouse that is going into administration, the Administrators will also oversee this. The likelihood is that if a company were to go into administration, claimants would receive less compensation than if they were still in business and it would take longer for payments to be made due to the larger creditors needing to be paid first (such as banks and larger suppliers).
If you believe that you have been mis-sold by an RTO retailer and haven’t yet made a claim, it’s important to do so as soon as possible as claims can take a long time to process and there are a lot of changes happening with new FCA regulations.
Are there other options?
If you have been considering purchasing something through a rent-to-own retailer, it is essential to do your research and look at interest rates and terms and conditions, and reviews from previous customers.
Of course, there is also the old fashioned way. You can budget and save until you have the cash to buy your item up-front. This isn’t always possible when you have lots of outgoings and a low income.
Recently though, there have been companies trying to break the mould of untrustworthy rent to own retailers. One such company is Fair For You who claim to be a not-for-profit alternative to high-cost lending. The idea is that you borrow from them to buy direct from manufacturers, then pay them back in affordable payments as quickly (or slowly) as you like. The quicker you pay, the less you pay.
If you are finding it increasingly difficult to meet the repayments of your rent to own items due to a change in circumstances or because your affordability wasn’t calculated accurately, contact Debt Movement today. Our friendly and professional guides can help you understand your options and give guidance on how to proceed.