Weekly payment stores let you rent expensive goods at an 'affordable' price, with a view to buying them at the end of the term. Where's the catch?
Unfortunately there isn't just one catch but catches: plural.
These stores position themselves as an affordable way to pay for things such as a washing machine or new TV - the issue is they are not so affordable.
Their low weekly payment makes their products appear more attainable, but the reality is that spreading your payments means you'll actually end up paying much, much more.
For example, a washing machine priced at £1,015.99. If you pay a £12.50 weekly payment, at 64.7% interest, the item will end up costing you £1,950 over 3 years - nearly double the price!
In fact there are almost always cheaper options available. We take a look at weekly payment stores and find out if the price is ever worth it.
Pay weekly and pay monthly stores divvy up the price tag of expensive furniture, appliances or technology into a much lower payment - but add-on significant interest.
By the time you're all paid up your total payments can double the cost of your item.
You can usually make payments by phone, online or in store at stores such as BrightHouse and PerfectHome, while Buy As You View collects payments using a meter fitted to your TV.
However cheap the weekly charge looks on its own, the right way to go is comparing the total cost. This is because:
Inflated buy it now price... Even before stores add interest, their basic prices are expensive. This means if you buy it outright halfway through your agreement (to avoid further interest) you'll still pay that hefty mark-up
High interest rate... Typically pay weekly stores will charge anything between 30% and 70% APR interest, but remember you're paying interest on that inflated price too. This will bump up the total interest you pay
Non-ownership... You're renting rather than buying so you don't actually own the item until you've made a final "purchase" payment. Added to that, agreements typically last for 2-3 years during which you're financially responsible
for damage, etc
Don't confuse with... Pay weekly or monthly rent-to-own transactions ARE NOT the same as instalments, a lease, hire purchase or buy now pay later credit account shopping: you get less protection (e.g. no Section 75)
Rent to own has traditionally proved popular due to weekly payment stores no deposit offers and their weekly payment catalogues for bad credit.
However, most stores now run the same credit checks as credit card and store credit applications: you don't get any advantage and you're not guaranteed a top price. As ever, the answer is to shop around:
If you buy using a credit building card, you'll own the washing machine outright and thereby benefit from Section 75 cover. While interest rates are high, typically around 35% APR, that's still significantly lower than many pay weekly stores.
If you bought the same washing machine on the high street for £850 outright, on a 34.9% credit card, you'd clear the balance in 22 months by paying off £12.50 a week. You'd pay a total of £312 in interest and save nearly £800 overall. Compare credit cards for poor credit...
If you buy using a 0% purchases card, you won't pay any interest for its 0% promoted period. That means you're paying down the purchase price only, and by the time the 0% period ends the balance you do pay interest on will be much lower.
A mid-range card might give you 12 months' 0% interest, then charge around 18.9% APR. If you buy the £850 washer outright and paid £12.50 a week you'd pay off £650 in the first year, interest-free. You'd pay the last £200 off within 4 months, saving over £1,000 compared to pay weekly stores! Compare 0% purchase cards...
Some stores such as Littlewoods and Argos, etc, offer store credit which lets you buy items today and pay later or by instalment. Their overall cost is comparable to a credit card for poor credit, but still much cheaper than a pay weekly agreement.
Terms vary, but store credit can offer 0% periods the same as purchase credit cards, or flat rate APR usually around 30-35%. You could save nearly £800 against a weekly payment store charging 64% interest.
If you do decide to buy from a weekly payment store, it's vital that you know your rights. Retailers are regulated by the Office for Fair Trading (to be taken over by the FCA in April 2014) which means you have clear channels to complain if you feel you've been treated unfairly - including the Financial Ombudsman Service.
You can also check if companies have signed up voluntarily to the Codes of Practice published by industry bodies such as the Finance & Leasing Association, Consumer Credit Trade Association or Credit Services Association.
You're protected by legislation including the Supply of Goods (Implied Terms) Act 1973 and Consumer Credit Act 1974. Although , you can complain to the Financial Ombudsman about the quality of goods received.
If you are getting nowhere trying to get a refund on a faulty item or are not happy with the service you have received, you can always put a complaint in with the company.
They will hopefully look to resolve the complaint promptly, but unfortunately this may not be the case. You can contact the Consumer Ombudsman for support in getting your complaint handled in 10 working days.
When you buy from weekly payment stores, you can choose to complete the purchase or cancel your payments at any stage. Check over the terms of your agreement before you cancel, and know your rights:
If you've paid over 1/2 of the total amount due, you can cancel and return the goods without penalty
If you've paid less 1/2 you can still cancel but you may be liable for a penalty fee
If you've paid over 1/3 of your agreement total, the retailer must get a court order before they can repossess
Retailers cannot forcibly enter your home to repossess goods without a court order: just say no
Even with a court order they cannot legally repossess items unless they have issued you with a default notice and given you at least 7 days to put things right
Weekly payment stores cannot pressurise you into paying in full, in unreasonably large instalments, or increase payments to a level you can't afford
Punitive penalty charges for late payment and cancellation are illegal - losses for breach of contract must only reflect the actual loss
Find the best credit card for you, whether you're looking for 0% card for balance transfers or purchases or day to day spending and rewards