Looking for a bargain on a big gift this holiday season? Lease-to-own programs might sound great. Get that big-screen TV or new living room set in your home the same day without actually buying it. But Consumer Reports has an important warning: Leasing programs could end up costing you two to three times more than buying items outright.
The program run by a company called Tempoe is used by Kmart, Sears, and other retail stores. Here’s how it works: Customers must agree to lease items for 5 to 18 months, during which time the product can be returned. But they can opt to buy it for what they’ve already paid after they shell out an additional “buy out” amount. This program targets customers with little cash or poor credit, who can leave the store with the merchandise that day. That immediate gratification is a huge draw.
Consumer Reports analyzed a lease deal on a $750 TV at Kmart. After 5 months, you’d pay $624. If you chose to buy it, it would cost you an additional $412, totaling more than $1,000. An 18-month lease is even worse. After $2,247 plus $315 to buy it, you’d be paying 3 and half times the initial price. That's the equivalent of using a credit card with an interest rate of more than 200%, far higher than Consumer Reports has seen. It’s outrageous.
In a statement to Consumer Reports, Tempoe says it is a “great alternative ... when there is a need for the customer to take home what they want.” But Consumer Reports says it might be best to steer clear.
A spokesman for Kmart and Sears says that salespeople are trained to explain the leasing terms and conditions, and that customers are given a copy of the agreement upon leaving the store. In most states the lease-to-own program allows customers an early-purchase option after 30 to 90 days at 5 to 10% above the retail price.
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