The holiday season is nearing and so are an influx of rent-to-own company ads promising hot items at nearly unbelievably low monthly payment amounts. Is rent-to-own a scam? Or is it really a great way to be able to buy things you might not be able to afford otherwise?

From a legal standpoint, the truth is that rent-to-own is not a scam, however it is far from a consumer's best friend. Rent-to-own has its upside: Super affordable monthly payments. It does have a lot of downsides too though.

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Highly inflated price points

The cost for most items at rent-to-own stores is much higher than you'd find at a traditional big-box store or warehouse club store. For this article, I looked at the Samsung 50-inch Ultra High Definition TV. Target sold the television for $599. Sam's Club currently markets it for $578.

The rent-to-own store was much higher: Their cash out the door price was over $800, and their 16-month financing, depending on which interest rate you qualified for, meant you’d pay a total of between $960 over a 12-month period or nearly $1,200 over a 16-month period for that TV.

Most rent-to-own stores also have a “90-day same as cash” option, but the inflated price still rings true even when you’re paying “same as cash.”

Astronomical interest rates

One could argue that store credit cards and even traditional big bank cards have rates at 15% or more, but the difference is in the options. Many stores will offer "90 days same as cash" just as the rent-to-own stores do, but their prices are much, much lower than rent-to-own store prices. If you've got decent credit, you can easily find a better credit card with a 9% to 11% interest rate, which would have you paying much less over a 16-month term than rent-to-own stores would charge.

Also, rent-to-own companies are under no legal obligation to be clear about the interest rates you pay. Here's an excerpt from the New Hampshire Department of Justice web site:

“Because a rent-to-own contract is NOT a credit agreement but a rental contract, it does not come under the federal Truth-in-Lending Act’s interest rates and finance charge disclosure requirements.”

See here for more info on rent-to-own stores: http://doj.nh.gov/consumer/sourcebook/rent-to-own.htm

They prey on the financially unstable

The allure of the rent-to-own store is the promise to give people now what they can’t afford in cash until later – or maybe never. The low payments combined with the joy of being able to take home your new furniture, television, computer or appliance today is tough to overcome, especially if you’ve been living with old and worn out items for quite some time.

What if you have to return your item because you can no longer afford the payments? “No problem,” says the rent-to-own company. They’ll take it back and cease charging you. So you just paid seventy dollars a month to borrow a TV. And if there’s any sort of damage to the television, you can expect to pay extra fees for repair of the item or even the full replacement cost if it can’t be repaired. This can get especially costly where furniture is concerned, which naturally gains wear and tear over time.

There is a better way

If you’re in need of a new electronics item, appliance or furniture item, consider these better options for buying what you need.

Save up first

In our house, we use what I like to call a Countdown Fund when we need to save money for a new item. The Countdown Fund is simple to use: Just take the amount of money you need to save, divide by the number of months until you want or need the new item, and put that much money into a savings account each month. For instance, if you wanted that new 50-inch Samsung Hi-Def TV (which costs roughly $600 at a traditional store), and you wanted to be able to buy it within six months, you'd save $100 a month.

If you wanted to wait nine months, you'd be paying the same amount of money into your savings account ($67) that you would at the rent-to-own place, with the exception that your TV would be paid for in cash in nine months. That's much faster than the store's 16-month plan. Having trouble saving money? Check out these tips for improving your money situation.

Consider buying used

If you don't want to wait that long, consider buying used. Sites such as eBay and Craigslist as well as garage sales everywhere are loaded with electronics, furniture and appliance items that people no longer need or want. You can often pay a tenth of the price for a used item than you'd pay for something when you purchase it new.

Take advantage of zero interest rate offers

If you’re still committed to borrowing for your new item, consider taking advantage of 90-days-same-as-cash offers or zero interest rate offers from stores that charge a fair price. You’ll get the same great product in brand new condition for a fraction of the cash price you’d pay at a rent-to-own store.

If you’re looking to make the best use of your money, steer clear of rent-to-own stores and opt for one of these lower cost ways to get what you need or want.