Cash-strapped and credit-constrained consumers: Here's a new way to pay for (and own) things

Consumers who struggle to get access to credit can face a lot of challenges when it comes to making big purchases that they don't have the cash on hand to cover. But a new financial product might change that.

FinTech company Acima (owned by Rent-A-Center) and Mastercard have partnered to create a first-ever lease-to-own (LTO) payment card: the Acima LeasePay™ card. This card helps those who do not qualify for traditional credit products to lease eligible goods at participating Acima merchants near them. Users enter their city or zip code to find participating stores near where they live.

The new Acima LeasePay card, announced on April 14, 2021, is geared toward cash-strapped or credit-constrained consumers to provide them with more choice and flexibility in how they pay for things. Cardholders can lease-to-own everything from furniture to appliances, consumer electronics and computers from a wide selection of national retailers that partner with Acima.

"There is a huge segment of consumers that are credit constrained, underbanked or who don't want to use credit to finance a transaction," Jason Hogg, executive vice president of Acima, tells Select. "For these consumers, traditional credit products or point-of-sale financing is incredibly difficult, cumbersome or unattainable. Purchasing new items for their home or life can become an undignified ordeal."

Through the Mastercard payment network, Acima purchases the selected item(s) directly from the retailers and then leases the merchandise to the customer under a flexible lease-to-own transaction. By agreeing to making small payments over time, customers can immediately get access to the things they need while also having the opportunity to eventually own the products. Customers are not locked into a long-term debt obligation (like you would be with an auto lease, for example).

While there are no interest rates or late fees associated with Acima's lease-to-own transactions, failing to renew your lease in a timely manner will result in a set fee that is disclosed in each agreement. The fee varies by state and each state has varying grace periods before the fee can be charged.

Here's a step-by-step breakdown of how someone would make a lease transaction with the Acima LeasePay card:

1. A customer is approved for a set amount of spending by Acima; they select an item at a participating Acima merchant near them that they wish to take home.
2. Acima calculates a lease payment based on the retail price of the merchandise.
3. The customer agrees to a monthly lease payment for an initial monthly lease term.
4. Once the customer agrees to the lease terms (often executed digitally on a customer's mobile device), Acima purchases the item from the merchant and leases the item to the customer.
5. The customer then begins to make lease payments to Acima using one of the following four payment options:

• Purchase the item for the same as Acima's cash price, plus a small purchase fee that varies state to state, within the first 90 days (Acima cash price includes a markup over invoice price. Acquiring ownership by leasing costs more than the retailer's cash price).
• Renew the lease by electing to make one or more subsequent monthly payments until ultimately obtaining ownership (total lease amount will be more than the purchase price paid by Acima).
• Purchase the item from Acima at any time during the lease.
• Return the item to Acima and terminate the lease at any time without penalty.

The first three options end with the customer eventually owning the item, while the last option allows them to terminate the lease at any time without penalty. Acima reports that many of their customers select the early purchase option, but all customers have the flexibility to lease, purchase or terminate the transaction as described based on their own needs.

Customers can now pre-register now for the new Acima LeasePay card.

Starting this summer, consumers will be able to use the Acima LeasePay card at participating merchants across Acima's mobile app, marketplace and web browser extension.

While Acima says that customers don't need to have a good credit score in order to be approved for a lease, the website states that eligibility requirements include a 3-month income history, monthly income of $1,000 or more and a checking account for at least 90 days in positive standing (free from non-sufficient funds, excessive overdrafts and negative balances). Consider applying if you have low or no credit but a source of income.

There is also a welcome offer for consumers: Get instant approval for a lease transaction by applying through the mobile app and, if eligible, receive access to up to $4,000 through the Acima LeasePay card. This $4,000 limit can be used to complete lease transactions at participating Acima merchants for any qualified goods in the U.S.

Once approved, customers can instantly access their Acima LeasePay card directly through the mobile app so lease transactions are quicker than ever. While there is only the virtual card option at the moment, Acima plans to issue a physical payments card in the future.

The Acima LeasePay card is currently not available in MN, NJ, WI or WY.

Acima may not consider your credit history or credit score when you apply for the Acima LeasePay card, but they do report your lease payment history to Experian, one of the three main credit bureaus.

Your payment history is the most important factor in determining your credit score — making up 35% — so a series on on-time lease payments can help boost your score and improve your overall credit profile for securing new credit in the future.

"Through the Acima LeasePay card, we can more efficiently connect [retailers and consumers]," Hogg says. "We can approve consumers for lease transactions to obtain access to goods they otherwise may be unable to obtain and, once we do so, we can equip them with a payments tool that allows them to shop like any other consumer — with choice, ease and dignity."

If you're looking to improve your credit score, you may want to also consider credit-building credit cards. These are credit cards designed for people with no credit history at all. Select's top pick in this category is the Petal® 2 "Cash Back, No Fees" Visa® Credit Card, issued by WebBank.

If an applicant has a credit score, it will factor it into their application. If they don't, WebBank will analyze the applicants' bank statements and other data, such as bill payments and earnings, to determine their eligibility. The Petal 2 card has zero fees, doesn't require a security deposit upfront and offers a cash-back rewards program.

Read our full review of the Petal 2 card here.

While the Acima LeasePay card does give consumers the opportunity to buy goods they might not be able to afford, it does come with a mark-up. Before you make any big purchase, make sure you have a clear plan to pay it off so you can avoid damaging your credit score. If your goal is to improve your credit and you don't need to purchase an expensive item, you might be better off going with a credit building card instead.

Petal 2 Visa Credit Card issued by WebBank.