What to look out for in Consumer Lease Contract
The most common mistake consumers make when taking goods on lease are assuming that they own the goods. Many consumers falsely believe that once they start making regular payments, or at least when the payment period ends, technically, they own the product. But this is not the case with a lease.
With a consumer lease, you hire an item over a specified period of time where you make regular rental payments until the term of the contract finishes. Despite the large amount of money you pay, you do not automatically own the item at the end of the lease period.
Consumers must be mindful that consumer lease does not operate like hire purchase market where you would eventually own the goods once all the payment is made. In fact in consumer lease, it is quite the opposite. You have to return the goods once your lease term has come to an end.
In some cases for example, you may only be entitled to "buy" the product after two successive leases have been taken out. This depends on what your contract says.
What are the potential traps?
If you're thinking about taking out a consumer lease, you have to proceed with caution. When it comes to dealing with any financial product, the golden rule is always to read the fine print. The devil is often in the detail, and that detail can be very hard to come by. The catches can be numerous, and depending on the circumstances and how the lease is managed, they may far outweigh any potential benefits. In particular, look out for these pitfalls:
1. Once you sign, you're locked in
A lease locks you in for a set period of time, regardless of whether you change your mind in the meantime. If you are allowed to break the contract early, you may still be required to pay out the full lease anyway, and you'll often be required to pay hefty exit fees for leaving early. This essentially means that once you sign, you're bound by the terms and conditions of the lease.
2. An expensive way to purchase
The overall cost of leasing is usually higher than the items paid for upfront, or if you used an alternative method like hire purchase or lay-by. It has been found that some lease payments can accumulate between 50 and 100 per cent above the original cash price of the product.
3. Conditions and real costs are not always made clear
Some companies offering lease products may not advertise what the real or true cost of the lease is ù ie what the total lease payments plus any ongoing fees will add up to over time. Instead, they only indicate what the regular repayment amount will be. In addition, they may not specify the item's cash price ù which means you can't compare what you'll pay if you buy the item upfront versus what you'll pay overall if you take the product on lease.
4. Not always a fair deal
Some lease contracts require you to pay a continuing amount to insure the item ù even though you don't technically own the item. And, if the item is defective or stolen, you may still have to payout the full amount of the lease.
5. Defaulting can be disastrous
Under the terms of many lease contracts, if you miss a lease repayment, the item you are paying for may be taken away, but you'll still be left with the lease to clear, and possibly additional penalties for having missed a payment. You may even be asked to pay out the entire contract immediately.
While the law requires disclosure of information in the lease document and statement of rights and responsibilities of a lessee, there is no guarantee that the consumer's interest will be protected by this type of disclosure. It is entirely on you to decide whether leasing the product is the best option.
You must therefore study the lease documents very carefully to make sure exactly what you are getting into.
You must take the time to explore all their purchasing options first.
You may be better off waiting a while and saving up for the item. If you still want to go ahead with leasing, you should shop around for the best price and terms and conditions.
But before signing any consumer lease agreement you should READ THEIR LEASE AGREEMENT carefully.
If you are not able to understand the terms and conditions of the lease, you need to take independent legal or financial advice.
You must also read the fine prints carefully before you enter into the lease contract or agreement.