It matters because lease-to-own often approves shoppers with little or no credit history, so it gives a final option when lenders decline. LendPro is not a lender or lessor; lenders and lease providers make all decisions and set all terms.
Key takeaways
- Lease-to-own is a rental-purchase agreement in which the shopper makes regular payments and can own the item after all payments or through an early purchase option.
- Lease-to-own is not a loan, and the total cost is higher than the cash price.
- In the traditional waterfall setting, many retailers place lease-to-own last so shoppers who qualify for loans see those offers first.
- Lease-to-own generally covers goods, not labor or services, and terms vary by provider and state.
What is lease-to-own in plain English?
With a loan, the shopper owns the item from day one and owes the lender. With lease-to-own, the lease provider buys the item from the store and leases it to the shopper. The shopper makes lease payments to the provider and owns the item after the final payment or by using an early purchase option, which usually lowers the total cost. Approval often weighs income and banking activity more than a credit score. Terms vary by provider and state.
Lease-to-own vs. financing: what is the difference?
| Lease-to-own | Installment loan | |
|---|---|---|
| Legal form | Rental-purchase agreement | Credit agreement |
| Who owns the item | Lease provider until terms are met | Shopper from purchase |
| Total cost | Higher than the cash price | Price plus interest and fees (APR) |
| Typical approval basis | Income and banking activity | Credit history and score |
| Early payoff | Early purchase option | Prepayment |
What does it look like at the store?
A shopper with no credit history needs a $1,200 washer and dryer.
- The shopper chooses No Credit Needed, which skips the primary lenders.
- A lease-to-own provider returns an offer.
- The associate explains it is a lease, not a loan, and shows the total cost and the early purchase option.
- The shopper completes the provider's full application and agrees to its terms.
- The store finalizes the sale. The associate creates the invoice in LendPro, the shopper e-signs in store or by text or email link, and settlement is processed when the customer receives the goods or service.
Illustrative example. Dollar amounts are for explanation only; actual approvals, amounts and terms are set by each lender.
We will walk through your lenders, tiers and entry points in a live demo.
How does LendPro handle it?
Lease-to-own providers sit in LendPro's subprime and No Credit Needed tier. In the traditional waterfall setting, many retailers place them last, so shoppers who qualify for loans see those offers first. Shoppers can also choose No Credit Needed at the start, and the provider's full application may include a check with the credit bureaus and/or alternative credit sources. Where the provider supports pre-qualification, it uses a soft pull and won't affect credit scores. A lender may run a hard inquiry if the shopper accepts an offer.
What should retailers watch with lease-to-own?
- Never call it a loan. Train associates to say "lease" and to state the total cost.
- Check state rules. Availability and terms vary by state.
- Explain ownership. The shopper does not own the item until all payments are made or the early purchase option is used.
- Show the early purchase option. It often lowers the total cost; make sure the shopper knows the window and the amount.
- Goods, not labor. Rental-purchase generally covers goods, not labor or services.
- Keep loan offers above it. Shoppers who qualify for a loan should see that option before a lease.
Frequently asked questions
Is lease-to-own a loan?
No. Lease-to-own is a rental-purchase agreement, not a loan, and the total cost is higher than the cash price.
Does lease-to-own need good credit?
Not usually. Many providers weigh income and banking history, and the provider's full application may include a check with the credit bureaus and/or alternative credit sources. Each provider sets its own criteria.
Can a shopper pay off a lease early?
Many providers offer an early purchase option that lowers the total cost. Terms vary by provider and state.
Where should lease-to-own go in a waterfall?
In the traditional waterfall setting, many retailers place it last, after prime, near-prime and subprime loan options. Shoppers can also choose No Credit Needed at the start.
Does applying for lease-to-own affect credit?
Not at pre-qualification. Where the provider supports pre-qualification, it uses a soft pull and won't affect credit scores. A lender may run a hard inquiry if the shopper accepts an offer. Each provider sets its own criteria and reporting practices.