What does it Mean to Leas to Own?
You may know about leasing options if you’ve ever tried to purchase a car, but did you know that lease-to-own (rent-to-own) options are available for a multitude of merchandise like tires, furniture, appliances, and even jewelry?
If you’ve come across this option, but don’t know exactly what any of it means, I’m here to help! Questions are constantly asked about lease-to-own financing in terms of how it works, what it really costs, or why it’s beneficial. So, we are gonna dissect this together and help you make an informed decision whether or not using a lease-to-own company is right for you.
What Is Least Own?
Let’s start with the easiest question - What is a lease-to-own option? Lease to own options are either done directly through the company you are shopping with or through a third party leasing company (i.e Progressive Leasing, Crest Financial, or Acima). They are normally offered as options for large ticketed items that many would not be able to pay for upfront right away. Essentially, the company will allow you to take the merchandise with you immediately and make small payments on it for a specified amount of time (usually 1-2 years). While you are making the payments, the leasing company still technically has full ownership of the merchandise. Once the agreed upon time frame as ended and you have made all the payments, you will then have full ownership of the merchandise, hence lease-to-own.
How Does Leasing to Own Work for Merchandise?
Applying for a lease-to-own approval is usually quite easy and the qualifications are simple, so almost anyone can utilize this option. Most companies offer an easy online application where customers can apply within minutes and receive an answer instantly. Once approved, you can make your purchase.
Most companies do not require a down payment, but some do charge a “finance fee” that needs to be paid at the time you sign your lease agreement. This payment varies between companies but is typically no more than $50. Your payments, as stated before, would last for a year and would be automatically debited from your checking account in coordination with your pay schedule. These payments would include all fees and taxes already, so they would never change throughout the length of your lease. Now, if a year seems like too much time, you can certainly pay off the lease early. Companies usually have an early buyout option where, if paid in full within the first 90 days, they will waive all extra fees. So, while smaller payments may be more manageable, paying it off sooner will save you in the long run.
Why Use Lease to Own Programs?
One of the major benefits of lease-to-own is that in most cases it does not require a credit check. Bad credit or no credit will not affect whether or not you are approved. So, what do they use to determine an approval? While qualifications may vary between companies a standard list of requirements will include:
A checking account that is at least 90 days old
Steady income and employment for at least 3 months
Deposits that equal $1000 a month
No insufficient funds, overdrafts, or negative balances
Another major benefit would be that you could build good credit or repair credit that has been negatively impacted in the past. A number of lease-to-own companies will report your timely payments to the credit bureaus helping build your credit score.
Even if you have great credit, lease-to-own can still be a great benefit to you, because it’s an easy way to make a large purchase without having to come up with all the money at once. Don’t max out a credit card and then have to pay interest just so you can have something right away! As long as you pay off the lease within the early buyout timeframe, as in 90 days same as cash, you won’t be charged any extra fees, so it’s the same as cash. EXCEPT you didn’t have to fork it all up at once and still got to take home the merchandise.
Of course, layaways are also options that allow for small affordable payments and don’t charge fees, but they can still require a decent deposit and the merchandise has to be paid in full before you can take possession of it. So, they need to be planned in advance. Lease-to-own allows you to have the cake and eat it too (even if it is last minute)!
Are There Any Downsides to Leasing to Own Products?
Now nothing is perfect and every option is going to have its benefits and its drawbacks. So, what would be the cons of using a lease-to-own program? One would be that, while the requirements are minimal and you may meet them all, there is still a chance you may get denied.
A denial is generally caused by a checking account not being opened and active for the required time.
Another downside to lease-to-own, and the reason a lot of people may think of them as “scams,” is the fees associated with it. Because they do not require credit checks, the total fees that lease-to-own companies charge can be high resulting in almost double the cost by the end of the lease. However, this is something that you would be very aware of going in, as long as you pay attention to your contracts that you have to sign. The fees are not “hidden.” And, as stated before, you can typically avoid ALL these fuss by utilizing the early buyout option such as the 90-day payment option.
Another downside is that because it is a lease-to-own, you technically do not own the merchandise until it is fully paid off. So, if at any point in time you miss too many payments, the leasing company does have the right to take the merchandise back and you can lose out on all the payments you have made. If you do run into payment problems the lease companies will try to work with you to meet your payment schedule.
A counter to this would be that, if for any reason you no longer want to keep the merchandise, you can send it back to the company and end any future payments you would have with them.
This is an option that would not be available to you had you used traditional financing.
Well, l there you have it! The beginner’s guide to lease-to-own merchandise. Use the information here to help determine whether or not a lease-to-own payment option would be right for you.