Kmart’s New ‘Lease-to-Own’ Financing – Is It Worth It?


Kmart's New 'Lease-to-Own' Financing – Is It Worth It?Just in time for Black Friday, Kmart is offering its new lease-to-own financing at stores nationwide this holiday, and year-round, for merchandise priced at $150 and over.

For customers with little cash and little or no credit, lease-to-own is an option that may become more widespread at big retailers.

Kmart, a Sears company, is making the financing option available on more than 600,000 products including home appliances, mattresses, ready-to-assemble furniture, lawn and garden equipment, consumer electronics, seasonal toys, sporting goods and service plans.

To qualify for lease-to-own, a customer must be 18 years of age, earn a minimum of $1,000 a month and supply a social security or tax identification number when applying.

Customers make the first lease payment at the store, followed by monthly or bi-weekly payments made electronically. After five months, customers have the option to buy out the lease.

Lease-to-own, or rent-to-own, arrangements have been the target of consumer advocates, who claim that these plans can end up charging exorbitant fees.

In the case of the Kmart plan, the initial contract is five months. After that, you can buy the item by making a balloon payment, return it or continue the lease for another 13 months.

Anytime during that period, you pay the balloon and purchase. At the end of 18 months, you have two choices: buy or return.

Kmart’s program has advantages over others: it does not mark up the retail price of the product and it limits the lease contract to 18 months.

Renewing lease-to-own contracts repeatedly is one of the big financing traps that can make these plans extremely costly.

Today.com provides this example of the Kmart plan:

“Let’s say you took home a $400 TV using the lease-to-own program. According to figures provided by Kmart, you would have paid $333 at the end of five months. You’d need to come up with $220 to buy the set outright. So, your total cost at that point would be $553.”

As with all rent-to-own agreements, consumers need to carefully review the contract terms and determine how much they are willing to pay for a product — above the retail price.


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