What is a consumer lease?
Has there been a time when you are in desperate need of an item for short term or temporary use only? And this means you do not wish to purchase the product because you don't want to own it or perhaps the cost of owning it straightaway is too high?
So what do you do? Many consumers take the particular item on hire to cover the need for that short term. Hiring the item means you are taking it on lease and the contract that binds this transaction between you and the lending party is known as consumer lease. It is the act of taking items on hire tied with a signed contract as the evidence.
A consumer lease is a form of finance (loan) provided by retail outlets. They tend to be offered by stores selling more expensive consumer goods like furniture, TVs, computers and whitegoods. This type of finance allows a consumer to lease the items over time rather than buying them outright.
The goods are hired wholly or predominantly for personal, domestic or household purposes. Goods hired for business purpose is not a consumer lease. The amount payable under a consumer lease includes any agreed or residual value of the goods at the end of the lease or on termination of the lease by the lessor or lessee; (where the lessor is the person who is giving out the good on hire and lessee is the hirer).
Note that the law does not apply to a consumer lease for a fixed period of four months or less or for an indefinite period.
In other words these leases last for a fixed period (usually two years or more), during which you make regular payments to the retailer.
At the end of the period, you usually have a number of options:
* Buy the item outright at its market value or an agreed value;
* Buy a similar model to the item you've been leasing, for a nominal fee;
* Upgrade to a new lease contract featuring a newer model.
Consumer lease can also serve the advantage of testing and trying out a product before committing to purchasing it for good.
What makes consumer leases attractive?
r A consumer lease allows you to take the item home straight away without having to pay the full price up front.
r When the time comes to buy the item outright, you have the option of taking out a new lease on a newer model instead.
The downfall however of taking goods on consumer lease for longer period is that the charge made for hiring the goods (lease payments) together with any other amount payable under the consumer lease exceeds the cash price of the goods.
Mr Damu who engages in handicraft work in his leisure time was in great need of a chainsaw for some of his big plans for his house. Mr Damu could not afford the machine outright and did not wish to buy it on hire-purchase either. The cash price for the cheapest one was $800. He decided to lease it from a big timber company with a deposit of $50 and he had to pay $80 monthly. He took it on one year's term. At the end of the year, he was amazed to see other latest models and brands available that does the job much easier and faster. Since he was still engaged in the handicraft work, Mr Damu decided to take another year's term on lease but with a different brand and model of chainsaw. But his monthly repayment increased to $88.
Information required to be disclosed in consumer lease:
A consumer lease must be in writing and signed by you. The consumer lease should contain the following information:
(a) a description or identification of the goods hired under the lease;
(b) the amount of payment to be made by the lessee before the goods are delivered;
(c) the amount of any stamp duty or other government charge payable by the lessee;
(d) the amount of any other charges not included in the rental payable under the lease, and a description of those charges;
(e) the amount of each rental payment to be made by the lessee under the lease;
(f) the date on which the first rental payment is due and either the dates on which subsequent rental payments are due or the interval between rental payments;
(g) the number of rental payments to be made by the lessee and the total amount of rental payable under the lease;
(h) a statement of the conditions on which the lessee may terminate the lease;
(i) a statement of the liabilities (if any) of the lessee on the termination of the lease.
The lessor must give you a copy of the consumer lease, together with a statement explaining your rights and obligations within 14 days after entering into a consumer lease. You as a smart consumer must ensure that you receive all pre-contractual disclosures.
Obtaining the pre-contractual disclosure and understanding how consumer lease works is very important before you make a commitment. Consumer lease can prove helpful for short-term need. It is very similar to hire purchase except you don't own the goods in consumer lease. We will talk more on this next week.