You might be installing an office space for your new business, or furnishing your home. When moving into any new space, there can be a lot of costs to account for. Sometimes, if you cannot afford to pay for everything up front, you may opt for a rent to buy format for purchases. With rent to buy schemes, you agree to rent an item (for example a fridge or TV) for a period of time and make regular rental payments. This can be every week or month over a number of years, but this can vary.
It is important to remember that you are not hiring the goods, but are making a commitment to buy them. At the end of the rental period, you pay a residual amount to finalise the purchase. Whilst these arrangements can seem suitable at the time, they do come with certain risks. Here are some things to keep in mind before entering into a rent to buy arrangement.
Common elements
Most rent to buy schemes will include the following attributes:
- Regular rental payments
- A designated time period for those rental payments to be made
- A final payment made at the end of the rent period that completes the repayments and gives you ownership over the item
Things to be mindful of
With any financial investment, it is always sensible to tread with caution. Sometimes a deal can seem too good to be true. There are a few things which are important to consider when opting for a rent to buy scheme:
Read the fine print
It is always best to make sure you read any and all documentation that coincides with the deal. It may seem like more trouble than it is worth, but reading the fine print carefully will improve your chances of avoiding any problems. Beware of any unfair contracts.
Ask the salesperson
Do not rely solely on the salesperson’s explanation of the scheme. Ask them as many questions as you feel is necessary to get a better understanding of the agreement. Make sure that what the salesperson says matches up with what you read in any documentation provided.
Beware of any hidden traps
Beware of hidden fees and late penalties. Sometimes a late penalty can be commensurate to the amount you would have to pay in an installment. This may not seem fair, but it is incumbent on you to know what you are signing and what you are getting yourself into. If you follow the first two points, you will likely be aware of any hidden traps.
Check the warranty and damage policy
Ensure that you are aware of the policy when it comes to damaged or stolen items. It is best to make sure that you are not liable for any stolen or damaged items which would mean that you would still have to keep paying rental fees despite not having use of the item anymore.
Depreciation & inbuilt obsolescence
By the time you pay off the remainder of the amount owing and own the item outright, it may be obsolete or it may be time to buy something new. Sometimes selling the item may then afford you a down payment on an upgrade, but this only works if the depreciation on the value of the item has been nominal. This is generally not the case as most things tend to depreciate significantly the moment you buy them. Do your research as to the quality of the item and the likelihood it will serve you for as long as you need.
Shop around
Shop around and do not take the first offer that becomes apparent to you. Look online, and try as many different outlets as you can before you make up your mind. The variance in price between retail shops can be quite large, so shopping around is very beneficial.
Benefits
Whilst there are a number of concerning features to some rent to buy schemes, there can be some benefits if you approach them sensibly and with the appropriate discretion:
- It can mean being able to fit out and office space without the immediate up front cost. That can be beneficial when you are shouldering the load of starting a business.
- Deferring the overall cost over time may afford you better tax asset write-offs for business purposes come tax time. You can read about these on the Australian Taxation Office website.
- Engaging in deals with certain suppliers may help facilitate good working relationships that provide you with subsidised deals in future. This is good if your business has on-going need for certain goods, and seeks to maintain a reputable account with a certain supplier.
- Furnishing a home can be a costly exercising, and if you have just purchased a property, or signed a lease, bearing the extra costs of household goods can be a bridge too far. This can enable you to do this in a timely fashion.
- There may be trade-in policies within the rent to buy schemes so that once you reach the end of your rental period, some suppliers may offer up an upgrade or newer version of the item in exchange for the remainder of the final payment. This will depend largely on the individual agreement itself.
Australian Consumer Law
Whilst Australian Consumer Law (ACL) provides consumers with certain protections, they are not as powerful and utile as you might think. Unfortunately, much of the responsibility rests on the consumer to do their due diligence when purchasing products. As the old adage goes, caveat emptor or buyer beware. Where the ACL protects the consumer the most is in respect of misleading and deceptive conduct. Retailers cannot mislead or deceive consumers. These provisions are part of the Competition and Consumer Act 2010, federal legislation that aims to control how traders deal with their competitors, suppliers, and consumers. You can familiarise yourself with your consumer rights on the Australian Government Consumer Law website.
There are a number of factors you ought to consider when entering into even the smallest purchase. Things are not always as clear, cut and dried as they may seem. Ultimately, it is up to you to be as thorough as you can when trying to determine whether a purchase is a good idea. If you are a supplier or consumer and need to seek further clarification on the legal side of these issues, it may be worth consulting with a contract lawyer for advice.
