Lease to Own Explanation

TVs can be leased to own.

Lease to own is a special means of acquiring property. Also called "rent to own," such an arrangement can be made for anything from the purchase of a home to the purchase of a television or other consumer goods. There can be both benefits and detriments to a lease to own agreement.

Definition

In a lease to own agreement, you obtain the temporary use of an item in exchange for monthly payments. In this way, it is similar to a standard leasing agreement that you might sign for renting an apartment, for instance. You borrow the item--whether it is a home, a TV or a toaster--and pay each month for the privilege of its use. Under a lease to own agreement, the owner and lessee both sign a contract. The contract gives the lessee either an option to buy the property at the end of the term, or mandates that the lessee buy the item. When there is a contract in place, the monthly lease payments are higher than they would have been if the contract didn't exist. However, if the lessee decides to buy the item and follows through on the lease to own deal, the extra payments made (or in some cases, almost all of the payments made) are applied to the purchase price of the item.

Types

Rent to own shops are usually retail establishments where consumer electronics, appliances and home furnishings are sold or leased. A lease to own arrangement can also be created for cars or houses. When applied to a house, the buyer normally pays rent for a set period of time, after which he is given the option--but not required--to buy the house. The money he paid in as rent is applied, in whole or in part, as a down payment on the house, reducing the amount he has to borrow from the bank. The home buyer can use the money he paid during the lease period as equity in the home in order to qualify for a mortgage.

Benefits to the Buyer

A person who buys in a lease-to-own situation gets the benefit of having the use of the item earlier. Instead of saving up to buy an item, she gets to use it right away and save for it as she enjoys it. This can be especially useful for items you might need right away. For example, you can avoid having to rent an apartment while you save for a house, because your rent payments essentially act as forced savings. Likewise, if you need a washer and dryer but don't have the cash, you don't have to wait to buy; you can lease the equipment while you save.

Downsides to Buyer

Buying through a rent to own program, especially if you are buying consumer goods such as furniture or electronics from a rent-to-own store, can be much more expensive than simply saving up and buying for the item, because of the extra interest you are paying. Furthermore, if you opt not to buy the item in the end, then you lose the investment you made.

Benefits to Seller

The major benefit of a lease to own situation for the seller is that it protects her from falling price values. Her lease to own contract with the buyer will stipulate how much the buyer will pay. If the property values fall or the worth of the consumer item declines in value, the seller will still get her money. Even if the buyer changes his mind, the seller still got the benefit of having higher income than she would have had if she had just leased the property at normal rates. In addition, a renter who is thinking about buying a property or an item usually takes better care of it than someone who is only renting.

References

• Washington State Office of the Attorney General: High Price of Rent to Own
• New Hampshire Department of Justice: Rent to Own