The basics of lease purchase or rent to own agreements

Apr 28, 2021
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Sometimes the purchase of big-ticket items – such as furniture, computers, or appliances – doesn’t fit into your budget or timeline. One possible financing option is a lease-purchase agreement, also known as a lease-to-own or rent-to-own agreement.

A lease purchase is an arrangement that allows you to lease an item, for a weekly, bi-weekly, or monthly payment, with the option to buy it at any time. Other than a processing fee, there is typically no down payment required. These reasons make a lease option more accessible to folks that struggle with a poor credit history.

In a lease-purchase or rent-to-own agreement, you agree to a weekly, bi-weekly, or monthly payment plan for merchandise. You agree to make each payment as it comes due and are free to end the relationship by returning the item to either the merchant or lessor at any time*. If you continue making payments, you can opt to buy the item under the terms of the agreement.

Merchandise is generally available immediately or delivered quickly, making it a convenient option for critical household items that are hard to live without. Typically, the merchant or rental company will make repairs or replace the item if it breaks while you’re making payments, but you should always check your contract for specific details.

While there is some flexibility in the terms of a lease-purchase agreement, these are some standard things you’ll want to know.

A lease-agreement is a contract between, you the lessee, and the store or party financing the agreement, or lessor.

This is a simple calculation of the cash price (price on the tag) plus the lease fee. Because there is an additional fee, the total cost will be more than the cash price. And be aware that some merchants and lessors may apply an additional markup*.

Cost of lease

This is the fee for leasing the merchandise. Sometimes this is called a “factor rate” on your lease-agreement. Since you are not putting any money down for merchandise, cost of lease gives you access to the merchandise until the end of the term.

Cash price

This is the price listed on the tag for the item you’re interested in.

This is also known as the “fine print,” and it lists all the details you need to know about the agreement between the lessor and the lessee. It is important to read and understand the terms and conditions before you sign it.

Each lease is different, so be sure you understand the language around late lease payments. There may be penalties or fees for a late or missed payment. If there are consecutive late payments, the merchandise could be repossessed.

Grace period

Some lease agreements include a grace period, which is flexible around the payment date. For example, if your payment is due on the 5th of the month, the grace period would be the time allowed until a late payment fee is assessed, or the 7th of the month.

There are some definite benefits to a lease-purchase compared to other types of financing. These include:

  • No credit needed- If you’re trying to improve or repair your credit, being able to get what you need with no credit or bad credit is a plus. And, depending upon the lease agreement, when you make your lease payments on time, it may improve your credit score.
  • A trial tun- A lease-to-own agreement can be a good idea if you want to try out a particular product – a washer for example – before you buy it permanently.
  • No repairs or maintenance- Generally, the merchant or rental company takes care of any repairs or maintenance during your contract period. If you experience a serious issue, they may be able to give you a “loaner” while repairing your merchandise.
  • A flexible arrangement- Your life circumstances might change. If you’re laid off from your job or other unexpected expenses come up, you may have the option to return your merchandise or end your agreement with no additional obligation.

While having their advantages, lease purchases or rent-to-own agreements, also have drawbacks. In some instances, you may pay more for the item than the cash price of the merchandise by the end of the rental contract. It’s important to consider all your options – lease-to-own, rotating credit, or deferring purchase until you have cash – and then make the decision that is smartest and best for you.

*Refer to agreement for further information on costs, fees and who to return merchandise to.

The content of this article is for informational purposes only and should not be construed as personalized legal, financial, or other advice. This article represents paid promotional material provided by or on behalf of Snap Finance, LLC, or its affiliates.
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