That's fine for Christmas presents. But what if your refrigerator just broke, and you don't have the option of waiting two months to get a new one?
It's with that sort of scenario in mind that Sears (SHLD) will be rolling out a lease-to-own program starting May 15. Customers who want to make a major purchase but can't get financing or wait for layaway will be able to rent the item, with the goal of ultimately buying it outright.
Sears says that the program will be limited to appliances, electronics, furniture, mattresses and other similar products; the item must cost at least $280 to qualify. While there is no credit check, customers must be at least 18, make at least $1,000 a month, and have either a Social Security number or a taxpayer ID.
The program is being made possible through a partnership with WhyNotLeaseIt, a New Hampshire-based lease-to-own company.
Jai Holtz, vice president of financial services for Sears Holdings, tells DailyFinance that Sears started testing the program back in September at 10 stores across the country.
"The response from customers has been tremendous," he says. So far, he adds, refrigerators and lawn tractors have been the most popular items for customers to purchase via lease-to-own.
From what Sears told DailyFinance about the program, though, it sounds like the retailer will be steering clear of these excesses. Customers will be charged the same price as someone buying the item outright, and all rent payments will be deducted from the final purchase price. After five months of monthly or biweekly payments, the customer will have the option of paying the balance and owning the product. If they're not ready to do so, they can continue making payments until 18 months after the time of purchase.
But you may be wondering: What about interest? How much am I paying for the privilege of this lease-to-own deal? No worries: There is no interest, says Holtz. And to quote from the FAQ page of Sears partner WhyNotLeaseIt:
Customers who can't pay off their balance within 18 months or who decide they'd rather not own the item can call to have it picked up, and WhyNotLeaseIt will take possession.
What is the interest rate? A lease is not a loan -- there is no interest rate. Please carefully examine your payment schedule for amounts payable.
But therein lies the danger: If you ultimately can't afford to own the item, you're out whatever rental payments you've paid up to that point. The last thing you want to do is make months of payments on an appliance and not even get to keep it.
After all, if you put a refrigerator on layaway and can't afford to finish making payments, you get your money back. And if you put it on a credit card and have trouble paying off your debt, you have numerous debt repayment options (and have the option of selling your fridge second-hand to help recoup some losses).
But if you lose your job halfway through paying off your lease-to-own agreement, the company simply takes back your fridge, and you're out hundreds of dollars (and without anyplace to put your eggs and milk).
So the golden rule of borrowing still applies: Don't buy something if you're not sure you can afford it. But if you're confident that you'll be able to pay it off within 18 months, this will be a great option for anyone who needs an appliance immediately, but can't borrow money or put it on a credit card.
"Access to credit for many Americans has become much more difficult," says Holtz. "This lets us serve those individuals."
Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.