Rent-to-own (RTO) lenders in the United Kingdom provide customers with the flexibility to pay weekly or monthly for products, including household appliances and furniture. At the end of the term, they can choose to purchase, return, or upgrade the item. However, it’s essential to be aware of the varying interest rates, which can range from 38% to 100% APR.
RTO lenders such as Brighthouse, Perfect Homes, and Buy As You View cater to individuals with low incomes. This financing option proves particularly beneficial for those who lack the upfront cash to buy appliances outright or face challenges securing credit from traditional high street stores.
Ownership of Rent-to-Own Items
The ownership terms for rent-to-own agreements depend on the specific lender. Upon completion of the agreement term, customers may either fully own the item, return it, or upgrade and renew the agreement. It’s important to note that due to high interest rates and fees, a significant lump sum payment is often required to own the item outright when the contract ends. This means customers may end up paying considerably more than the item’s actual value.
Interest Rates and the October 2019 FCA Announcement
Previously, interest rates and fees on rent-to-own items could reach as high as 150% of the item’s value. For instance, a £500 item could cost a customer £1,250 to own at the agreement’s conclusion, which raised concerns. In response, the Financial Conduct Authority (FCA) implemented new rules in March 2019.
These regulations include:
- Setting a maximum credit cap of 100%.
- Requiring firms to benchmark base prices (including delivery and installation) against fees charged by mainstream retailers.
- Prohibiting rent-to-own retailers from increasing prices for insurance premiums, extended warranties, or arrears charges to compensate for the price cap.
These rules ensure that the total cost of a £500 item, including fees and charges, cannot exceed £1,000. While it remains a substantial amount, the FCA will likely review the cap again, encouraging rent-to-own retailers to lower their rates in the interim.
Consequences of Failing to Meet Repayments
Defaulting on repayments with a rent-to-own retailer carries similar repercussions to any other lender. While some RTO retailers may repossess goods within a specific timeframe, most require a Return of Goods Order from the court. Alternatively, they may pursue payment recovery rather than repossession.
If the lender fails to recover the owed amount through regular means like phone calls and letters, they may involve a debt collection agency or bailiff. In extreme cases, they may seek a County Court Judgement (CCJ) through the courts. Debt collection information can be found in the Debt Help section of our website.
Addressing Potential Mis-Selling
In the event of potential mis-selling by a rent-to-own retailer, it is crucial to file an official complaint promptly. Mis-selling may include inadequate affordability checks, leading to frequent payment defaults through no fault of the customer. It may also involve adding insurance or payment protection insurances (PPI) without proper consent or knowledge.
Instances of mis-selling led to numerous complaints against Brighthouse, the UK’s largest rent-to-own retailer. The FCA ruled in favor of customers, ordering Brighthouse to refund them with an additional 8% as compensation. However, the company faced severe financial difficulties and eventually went into Administration.
Implications of Rent-to-Own Retailer Administration
If you owe money to a rent-to-own retailer like Brighthouse that entered Administration, it is crucial to continue making your existing repayments and adhere to the agreed-upon terms and conditions. It is highly unlikely that the debt will be automatically written off.
During Administration, the appointed Administrators will oversee your payments. Falling behind may result in additional interest and charges on the outstanding balance, potentially affecting your credit score. If you have an ongoing mis-selling claim against a company entering Administration, the Administrators will handle it. However, claimants are likely to receive reduced compensation and experience longer wait times due to the prioritization of larger creditors.
Exploring Alternative Options
When considering purchasing through a rent-to-own retailer, thorough research on interest rates, terms, conditions, and customer reviews is essential. Additionally, saving up to buy the item outright remains a viable option, although it may be challenging for individuals with low incomes and numerous expenses.
Fortunately, there are companies like Fair For You aiming to provide trustworthy alternatives to high-cost lending. Fair For You positions itself as a not-for-profit organization offering affordable borrowing to purchase directly from manufacturers. They allow flexible repayment schedules, where the quicker you pay, the less you pay.
If you find it increasingly difficult to meet rent-to-own repayments due to changing circumstances or inaccurate affordability calculations, contact Debt Movement today. Our knowledgeable guides can help you understand your options and provide guidance on how to proceed.
At Debt Movement we provide professional debt guidance and solutions that help you move out of debt. We offer non-judgemental financial guidance to relieve the burden of financial strain and offer support on your journey to financial freedom. Request a free call back today.
