The Expansion of Retail Leasing
Life used to be really simple. I don’t remember when it was simple, but I guess it’s true, because people say it all the time. I do know that it is more complicated now than it used to be. We understand when we need a car, we either lease it or take out a loan if we can’t buy it for cash. And we know most landlords want a signed lease instead of a month-to-month rental. But now we have to decide whether we want to buy, rent or lease when it comes to things like electronics, appliances and even pets.
What makes it harder is when you go into a retail establishment and you want or need that special item, the person who explains the available options and terms might not understand the difference. It is not their fault. Each company has a different name for their program, and many states have different regulations about how leasing programs can be structured. One company I looked into explained that their program provides a rental- or lease-purchase agreement — or in certain states, a rent-to-own agreement, a consumer rental-purchase agreement or a lease agreement — with an option to purchase.
Well, that clears it up. So, when you sign the agreement, are you leasing or renting or maybe kind of buying it, sort of? The one sure thing is that if you rent or lease, you do not own. Beyond that, all kinds of things can differ from one leasing/renting/owning agreement to the next. Here are a few things to consider:
1) Will you own the item at the end of the term?
2) What happens if you miss a payment?
3) What happens if you want to buy the item outright before the end of the term?
4) How much do you have to pay at the beginning and/or the end of the term?
5) Will good or bad performance on the agreement affect your credit score?
6) Most importantly, how much is the program going to cost in addition to the price of the item?
On this last point, for example, here’s some familiar language you might come across in a disclosure from an electronics leasing company advertisement:
The outlined lease is a rental-purchase agreement for new merchandise. If you do not exercise your early purchase option, our offer requires 52 weekly payments of $15.00 (plus tax and delivery) for a total cost/total of payments equal to $780.00 (plus tax and delivery). This includes the $332.45 cash price and a $447.55 cost of rental.
Wow! If you just waited a year and saved up, you could have bought two — with cash!
When considering a lease or rent-to-buy program, you have to read all the fine print. I know it is boring, and most of the details will not be a problem — nor will they be negotiable. But you cannot rely on the sales representative, finance manager or customer service representative to tell you everything you need to know. Remember, they may not fully understand it themselves. You might want to run it by your nearest legal services office before signing any papers, since it is a binding legal contract.
The process is hardly simple — and sometimes, it’s downright expensive. Luckily, you have choices. If what you are looking for is a want and not a need, a good idea might be to save up and buy it with cash when you have enough set aside. If it’s a need, consider using your emergency fund before exploring your options for financing, and read the fine print before you buy. We can’t always turn back the clock to simpler days, but we can try!
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Written by Dave, an Accredited Financial Counselor® who has been helping families plan their finances for more than 30 years.
