At the intersection of the buy now, pay later (BNPL) revolution and the ongoing quest for those with little or no credit to access better payment terms, we find lease-to-own, a familiar type of installment payment created for durable goods — from refrigerators to dishwashers to other household machinery — that’s being re-energized amid the boom in alternative credit.
In the report Finding Retail’s Invisibles: Leveraging Flexible Digital Payments to Reach Underserved Durable Goods Customers, a PYMNTS and Katapult collaboration, researchers surveyed more than 2,120 U.S. adults to learn how lease-to-own is fitting into the credit mix.
The findings get right to the heart of what’s powering the BNPL movement. “Consumers who choose lease-to-own cited flexibility (79%) as a top reason. Leasing to own allows consumers to make payments on a product over time while using it — along with early purchase options or the choice to return it without further obligation,” per the study.
“Many consumers also said lease-to-own options were the only way they could afford to complete the transaction (75%) and that it allowed them to obtain items they needed right away (73%).”
Lease-to-Own and the Loyalty Effect
Like BNPL and its installment payments forebearers, lease-to-own is known to create higher levels of consumer satisfaction with both merchant and brand, which leads to loyalty.
Per the study, “66% of consumers who previously used lease-to-own options at checkout plan to use the option to shop again at some point. This is compounded by another statistic: 43% of former lease-to-own program users see the option as incentivizing them to shop with a particular merchant. Almost 22% of all respondents said their willingness to shop is higher with merchants who offer lease-to-own programs. Millennials and bridge millennials show an even higher level of motivation to shop when a particular merchant offers a lease-to-own option (32%), as do consumers with low credit scores (35%).”
That tracks roughly with the effect BNPL has had with the growing number of merchants offering it as the 2021 winter gifting season comes into view. Like BNPL, lease-to-own has a potent appeal.
“When consumers need to obtain a high-ticket durable good and either lack the credit or find that purchasing it in cash would present a financial challenge, lease-to-own options allow them to lease the item instantly and make payments over time,” the study states. “Typically, lease-to-own programs provide the consumer with an option to purchase the item for as low as 5% above the cash price when the consumer exercises the early purchase option within three months of lease consummation.”
Merchants Have Much to Gain With Lease-to-Own
As much as credit-challenged consumers are liking lease-to-own options, merchants are similarly excited by its potential to create loyal shoppers across the demographic spectrum.
“Millennials and bridge millennials (both at 32%) and consumers with low credit scores (35%) are the most likely to say that such offerings will increase their willingness to shop. Our researchers learned that 25% of all consumers also have increased their willingness to shop with merchants that offer lease-to-own programs over the last 12 months,” per the study.
Moreover, researchers found that 27% of consumers “who have already used a financing option for a durable goods purchase say they would be more willing to shop with merchants that offer lease-to-own options. The attraction of such programs is elevated among millennials: 32% would be more willing to shop at merchants that offer these options.”