Should You Lease Your Next Big Purchase?

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Progressive Leasing has been around for 20 years. You might have seen the company’s name if you’ve shopped at Mattress Firm, Lowes, Kay Jewelers, Pandora, Big Lots, Metro PCS, Cricket Wireless, and Sam Ash—and that’s just naming a few.

But instead of offering financing for your purchase of a diamond ring, refrigerator, or electric guitar, Progressive Leasing offers short-term leases for big-ticket items. You essentially rent the item until you’ve paid off your agreement.

But is this method of financing a good idea for shoppers?

What a lease can cost you

Washington Post retail reporter Abha Bhatterai recently highlighted this company’s dealings with Best Buy, explaining that the store’s customers, if not approved for a Best Buy credit card, can apply to make their purchase through Progressive Leasing. The amount gets spread over 12 months, with payments deducted automatically from the borrower’s checking account on a weekly, biweekly, or monthly schedule they choose.

There’s no interest that accrues like that for a credit card or traditional loan, but you do pay fees for the service. While it’s not clear what exactly those “cost of lease services” fees cover, the maximum you’ll pay for the entire agreement is clearly stated on your lease documents.

The company emphasizes in its FAQ that you’re not borrowing any money. “With a Progressive lease, we purchase the merchandise you select from the retailer. Then you sign an agreement to lease that merchandise from Progressive,” the site explains. “Progressive owns the merchandise, but you can take ownership after making all required lease payments or through an early purchase option.”

But since you’re not borrowing, your lease program isn’t a line of credit. And that means your payment activity doesn’t get reported to the credit bureaus, which could bolster your score if you make good on your agreement.

A company spokesperson said Progressive Leasing doesn’t share customer demographics, but reiterated the company’s mission statement from its website: to provide convenient purchasing options “credit challenged consumers.”

Better than a payday loan?

If you pay the entire balance in fewer than 90 days, you’ll pay “a small amount more than the original retail price (except in CA),” according to the Progressive Leasing FAQ. Between that point and the end of your term, you’ll see a “significant discount” if you pay off your lease, according to a company spokesperson. They said the majority of their customers use the 90-day purchase option that limits their additional costs, or pay in full before the final payment on their lease term.

But if you take the full lease term to pay, you could end up forking over twice the price of your item in exchange for the financial convenience.

Take a look at what you’d pay for a Progressive Leasing agreement versus a store credit card.

Say you want to make a $1,000 purchase. With Progressive Leasing, you’ll pay $79 today and have $174.17 taken out of your paycheck every month. If you pay the total owed within 90 days, you’ll only pay that extra $79 on top of the purchase price of $1,000. But if you don’t, by the time your agreement is fully paid, you’ll have paid a total of $2,169.

Compare that to what you’d pay with a store credit card. These cards are understood to be a less-than-great deal for consumers due to their high interest rates–the average is 26%.

But even if you imagine that same amount ($1,000) on a credit card with an interest rate of a whopping 30%, it would only take seven months to pay off the balance with the same monthly payment as the Progressive Leasing option. Your total interest paid above the purchase price would be $93, compared to the extra $1,169 for the lease.

“It takes a lot to make a store credit card look like a decent deal,” said Matt Schulz, chief industry analyst at CompareCards.com. (MagnifyMoney, the site Schulz and I used to illustrate the total cost of using a store credit card, is CompareCards’ sister website.) Even the 90-day payoff amount is more than you’d pay with a credit card, he noted.

But if you don’t qualify for a store card, a lease plan like this could look like your best option. Schulz said that one of the advantages of personal loans and their alternatives is that there’s often greater clarity around your total cost that you don’t exactly get with a credit card. Clarity, however, can come at a high premium.

While it may be a better proposition than a payday loan for someone with poor credit—the Post’s Bhatterai notes that interest rates for those can bring your total cost to over 300% of the price tag—it’s still a situation that makes a lot of people wary, including store employees.

“It can help some people but it’s very misleading for others,” said Joshua Howard, who until last month worked in the premium home entertainment department of a Best Buy store in Memphis. “I felt really bad offering it.”

If your lease goes sideways, you’ll never own anything

There are situations for which Progressive Leasing can provide a convenient lifeline for someone who has an appliance keel over or needs a new computer in a hurry, for instance.

The company allows people to apply at a partner store or through its website, requiring just a Social Security Number, bank account details, and credit or debit card. Instead of a hard credit check, the company conducts a soft pull that won’t impact an applicant’s credit score.

Is it a safer bet than a payday loan if you’re in a jam? Sure.

But if we’re evaluating subprime lending options (and other terms for much of the same), the instant-layaway options from companies like Affirm, Klarna and Afterpay could be less costly. Affirm shows you the interest you’ll pay up front; Afterpay and Klarna offer interest-free installments as long as you pay on time. And Schulz said the cheapest option of all could be to borrow from family or friends.

Whatever method you ultimately choose, be on alert for details that could increase your cost.

Schulz pointed out the place that people tend to get in trouble, whether they’re applying for a store card, installment loan, or lease program: the fine print. “Nobody’s expecting you to completely read through the fine print associated with an offer,” he said. “But it is really important that you at least understand the rates and fees associated with it and other bold-headline numbers that go into any deal that you sign.”

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