Consumer leases ('renting')
A consumer lease is a form of financing for which you need to really have your wits about you when you’re considering it.
While simple renting (where you're not locked into a long contract) may be attractive under certain circumstances (see below), what’s now often offered as store finance is a form of leasing contract that has a fixed period (such as three years), after which you have options that include:
- making an offer to buy the appliance for its market value,
- buying a similar model (usually for a nominal amount like $1)
- ‘upgrading’ to a new model with a new lease contract.
Several companies offer various types of consumer lease. We’re far from impressed by some of the prices and deals that we’ve seen offered by leasing companies and retailers. Flexirent is probably the most prevalent company in this area (see Case study: unfair deal), but a range of companies offer similar deals or variations. Here are some of the things to bear in mind about leasing:
Expensive. We’ve seen examples in shops of how lease payments can accumulate to 50–100% above the original cash price. You could own the item much sooner (with approximately similar monthly payments) by using interest-free finance instead.
No ownership. With all leasing companies, despite paying all that money (more than the cash price), you won’t even own the item unless you’re able to buy it at the end of the lease period (see Leasing loopholes).
Locked in. If you want to get out of the contract early, you may have to pay all lease payments anyway. We’ve seen this in Flexirent and RentSmart contracts.
Total payments or interest rate not shown. Brochures from companies such as Radio Rentals don’t advertise what the total lease payments will add up to, or the item’s cash price, just what the regular lease payment will be.
No interest rate. Because it’s a lease and not a loan, the equivalent interest rate doesn’t have to be disclosed. Makes it hard to know if you’re getting a good deal.
Heavy contract terms. You could be obliged to pay lease payments no matter what happens, even if the equipment is defective, lost, stolen, damaged or destroyed. Sometimes you have to pay for insurance (it’s optional with Flexirent) — even though you don’t own the item.
Simple renting might be attractive under some circumstances :
- For example, to rent a widescreen TV for a weekend to watch the upcoming Ashes with friends.
- For people in temporary or shared accommodation to rent appliances for a short time.
- Rental deals are also sometimes aimed at people who don’t qualify for credit (assess their affordability before signing up!).
- Plus companies say they take care of delivery, installation and servicing.
Businesses: leasing companies often target businesses that lease computers and other technology, and there can be tax and other advantages for businesses.
We profile the credit deals (including interest-free) that you're likely to see in shops:
‘Buy now, pay later’
Ownership: You take the appliance home with you immediately, and during the interest-free period (usually up to about 18 months) you pay only an establishment fee and a monthly fee.
Fees apply: GE Money (products include Buyer’s Edge, CreditLine and Go MasterCard) and HSBC charge a $20–$25 establishment and $2.95 monthly fee for their ‘deferred payment’ deals.
Interest-free period. Repaying the full amount borrowed (including fees) any time within that period, either in a lump sum or with smaller repayments, avoids interest.
High interest can appy. Rates for balances repaid after the interest-free period range from large to exorbitant, so whether these deals are worth considering hinges on when you’ll repay. For example, HSBC charges 17.9% pa to 24% pa (depending on how it assesses your risk rating); GE Money's rate is 27.99% pa.
A card is often part of the deal — a ‘normal’ credit card that can also be used for other transactions, a department store card (watch out for rates that are higher than average credit card rates) or a card primarily used for interest-free promotions at participating retailers.
Ownership: Again, you get the appliance immediately, and the credit provider calculates the regular monthly payments required to clear the loan and fees within the interest-free period.
Fees and interest rates are similar to ‘buy now, pay later’ deals.
The regular monthly payments to clear the loan on time and avoid interest are more than the ‘minimum payment due’ shown on your statement — that’s just the amount you have to pay to avoid a late payment fee (up to $30).
Deposit required: some providers require a deposit — department store David Jones, for example, needs one third of the price upfront (the other two thirds to be repaid in equal instalments during the interest-free period, before interest at 21.9% pa kicks in).
Interest from the start
Not all credit deals are interest-free — some charge interest straightaway. Rates are likely to be higher than competitive personal loans and credit cards. Some deals, like one from HSBC, give a no-interest period (such as one year) before charging interest for the rest of the term. But with 17% charged for the remainder (for example, three years), it’s not an option we’d recommend — unless you repay in full within the interest-free period.
Direct debit arrangements
This can be a good option offered by some retailers: a regular interest-free direct debit from your bank account or credit card to pay for your purchases over time. Labelling it ‘take-home lay-by’, Certegy Ezi-Pay offers such arrangements for items including furniture and jewellery. Often, these direct debit deals are rebranded by the retailers that offer them. For example, at Freedom Furniture it’s called Freedom Ezi-Pay.
To qualify: You must be over 18 and work at least 30 hours per week to qualify (exceptions to the working requirement include aged pensioners, self-funded retirees and others).
Deposit required: Sometimes a 25% deposit is needed, and sometimes there’s a $10–$20 application fee (imposed by the retailer, not Certegy).
Like a credit card with that?
Retailers’ interest-free promotions are a way for some financial institutions to sign up new credit card customers — if you take the interest-free offer, you have to take the credit card too.
- While the interest-free promotion might be good value, check out the card’s merits before saying yes — particularly how interest will be calculated and charged and especially if fees and a high interest rate will apply to other transactions.
- For example, HSBC pushes its standard (not low-rate) card through retailers — it has a $59 annual fee and 17.95% interest rate. GE Go MasterCard has a 17.99% standard rate (no annual fee, but a $25 establishment fee applies).