This fact sheet is for information only. It is recommended that you get legal advice about your situation.
Jade is a uni student, mostly reliant on Austudy for income support. She was about to begin an assignment when her laptop broke down. She was unable to afford to buy one outright, so decided to apply for a lease. She selected a $700 laptop from a retail store, and commenced fortnightly payments of $25. The lease was for three years. At the end of the lease she will have paid at least $1950 – almost three times the value of the laptop – and she will not be able to keep it or have any right to ownership.
What is a Consumer Lease?
A consumer lease is a financial product which allows you to rent an item for a set amount of time. Common examples include a fridge, washing machine, laptop and TV. The other common example is a car lease. Regular payments are made towards the item, usually weekly or fortnightly. This occurs for the duration of the lease. When the lease ends, you do not own the item, the company you leased it from still owns the item.
Should I enter a consumer lease?
Consumer leases can initially appear to be inexpensive as the payments per week or fortnight are usually low, for instance, $20 per week. However, if the lease is for three years, this adds to $3120 for a product which may have cost less than half that amount had it been purchased in a different way. The price of consumer leases can vary enormously, with rates varying from comparable to an expensive credit card (about 20%) to hundreds of per cent per annum, but you will usually not be told the equivalent interest rate. There is a rent versus buy calculator available online here (https://www.servicesaustralia.gov.au/individuals/subjects/manage-your-money/rent-vs-buy-calculator), which can help you work out whether the lease is worth it.
If you are thinking about entering into a consumer lease – see our financial hazards factsheet here; https://financialrights.org.au/self-help-centre/financial-hazards-hotlist/rent-to-own-consumer-leases/
A consumer lease must be in writing, and a statement must be sent to the consumer at least every 12 months, detailing the payment made during that period.
Ninety days before the end of the lease, the lease provider is required to give you a statement detailing:
- The date the lease will end
- When and where to return the leased item
- Fees and penalties which will apply if the item is not returned by the due date
- Whether there is an option to purchase the item, and how much this will cost.
When the lease ends and the product has been returned, the rental payments should be stopped.
Consumer Lease or Sale by instalments?
Sometimes you may find products marketed as ‘Rent to Own’ or ‘Rent to buy’ – but the contract may only give you the option to make an offer to purchase the item at the end of the lease. A consumer lease usually does not give you any right to purchase the leased item at the end of the contract. If it did, it would be legally considered a sale by instalments.
A sale by instalments gives you the right to purchase the item – however these are rarely found in Australia because companies providing this type of product cannot charge the equivalent of more than 48% interest per year. There is no such protection for consumer leases, which is why they are much more prevalent and why they can be a very expensive option.
If you believe you were misled into a lease (because of deceptive advertising or false statements by the salesperson) you should get legal advice.
What happens if you can’t meet your lease repayments?
If your situation changes during the lease and you are unable to meet your lease repayments, contact the lease provider. The financial hardship provisions of the National Credit Code apply to consumer leases. You therefore have the right to apply for a hardship variation, which could include reducing or postponing your repayments (generally for 3 or 6 months at a time), and you may be able to have your arrears added to the end of the loan, and the loan term extended. More information is available here: Financial Hardship factsheet https://financialrights.org.au/factsheets/financial-hardship/.
You can also seek assistance from a financial counsellor by calling the National Debt Helpline on 1800 007 007. They offer free and confidential advice about dealing with credit and debt issues. If you require legal advice and you are in NSW, you can call Financial Rights on 1800 844 949.
If you could never afford the repayments from the start, you should get legal advice as consumer lease companies must comply with responsible lending laws.
What happens if the rental item is lost or damaged?
The item belongs to the lease company, so you would need to negotiate to pay back the value of the item – however the bigger problem is how much time you have left on the lease term. The item rented will lose value over time, so the lease company would be more concerned about the remaining lease payments.
You need to check the contract for clauses about terminating the lease.
Terminating a Consumer Lease Early
Check the wording of your contract. Often you can terminate a consumer lease before the expiry of the term if:
- The goods are returned in working order (or you pay out the value of the goods)
- You pay a termination fee. The contract will normally have a formula as to how this is calculated, and often depends on how long you have left remaining on the lease. If you believe the amount is excessive or unreasonable, you should get legal advice.
Terminating a Consumer Lease after the contract finishes
The lease agreement will state what will happen at the end of the lease.
Examples of what can happen are:
- Return the item in working condition. No further payments will need to be made.
- You may make an offer to purchase the item, and the lease provider will inform you how much more to pay to keep it
- Upgrade to a new or different model after returning the previous one. You will then sign up to a new lease agreement if you choose this option.
- With a consumer lease, there is no right to buy when the lease ends – but you should get legal advice if you believe you were misled about this.
Alternatives to a Consumer Lease
If possible, postpone you purchase until you can afford to buy the item/s outright.
Buy the product using a layby arrangement – https://www.moneysmart.gov.au/managing-my-money/banking/different-ways-to-pay
Consider other forms of finance
- No or low interest loans – for consumers on a low income, this can be a viable option to buy or replace a fridge, washing machine, microwave, computer and other regular household items. https://www.moneysmart.gov.au/borrowing-and-credit/other-types-of-credit/no-or-low-interest-loans
- Centrelink Advance: http://www.humanservices.gov.au/customer/enablers/advance-payment
- Personal Loan or low interest credit card
Last updated: July 2020