Nearly 400,000 people in the UK now use “rent-to-own” companies to buy their household appliances (BBC News) and pay back their loans over a period of three years. Rent-to-own companies allow people to access goods they would not otherwise be able to afford. However, the total cost of credit is not cheap; when interest is added, they can often end up paying more than double the purchase price.

Both the Citizen’s Advice Bureau (CAB) and the Financial Conduct Authority (FCA) are concerned about the lack of affordability checks carried out by some of these firms, meaning that some people are being allowed to sign up to agreements that they simply can’t afford to pay back.

The CAB is calling for a cap similar to that imposed on payday lending companies two years ago, which they claim, has been a success. They are also concerned about people getting into difficulties making the monthly payments, and many rent-to-own companies not always taking a flexible approach when borrowers get into debt.

Compared to the loans industry

The price cap regulations imposed in January 2015 state that interest and fees on all high-cost short term loans are capped at 0.8% per day of the amount borrowed. If borrowers do not repay their loans on time, default charges must not exceed £15.

In addition, the total cost (fees, interest, etc.) are capped at 100% of the original sum, which means no borrower will ever pay back more than twice what they borrowed.

At Uncle Buck, we welcomed the new FCA regulations. The new regulations have improved the sector. Some lenders in the market that were taking advantage of their customers by way of failing to make clear the penalties they could incur and the true cost of their borrowing. Those companies have either withdrawn from the market or been forced to raise their standards. Our guiding principle has always been about treating our customers fairly and being clear and open about all fees and charges. As a result, we have continued to grow and respond to the needs of our customers.

So, before signing any agreement, regardless of any affordability checks that a company has completed, make sure that YOU feel absolutely confident that you can afford the repayments.

Also, you need to make yourself aware of the total amount you will be paying, including any charges for late or missed payments and that it is acceptable to you.

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