At Best Buy stores, consumers without access to traditional credit cards or ready cash on hand have a new way to obtain the offerings: using a leasing program established by the retailer, in collaboration with a financing provider called Progressive Lending. After paying a $79 fee, they can leave the store with their electronics and appliance purchases, after which the company deducts preset amounts from each paycheck until the balance is paid.
According to the retail chain, the service represents a key benefit for low income or younger consumers, who may be excluded from or lack the credit history to qualify for traditional credit offers. The interest on the purchase is lower than what a payday lender or most rent-to-own companies would charge. However, it is higher than conventional credit card rates. Thus for example, one analysis estimates that a computer with a retail price of $199 ultimately would cost buyers $218 if they paid with a conventional Best Buy credit card, $495 through the Progressive Lending service, and $860 if they bought it from Rent-A-Center.
Progressive Lending is owned by Aaron’s, another rent-to-own company that has long allowed consumers to take home appliances with low down payments. The service provider issues the credit and pays Best Buy upfront for the purchase, then accepts the risk that consumers might not repay the loan. It earns its profits from the interest charged. Other retailers also rely on Progressive Lending for similar services, including Kay Jewelers, Lowe’s, and Big Lots.
For Best Buy, the option opens up new markets. According to one assessment, 65 percent of the people who relied on Progressive Lending did so to make their first purchase from the company. Yet ultimately, these buyers will pay more than a purchaser with cash or good credit, a practice that opens the door to ethical concerns and allegations of exploitation. Even some Best Buy employees have expressed concerns, noting that they felt deeply uncomfortable encouraging their customers to enter into a contract that threatened to cost them a lot of money over the long term. But Best Buy insists the benefits, both for its bottom line and for consumers, are far more compelling than the risks.
Discussion Questions:
- What are the advantages and disadvantages of Best Buy’s lease-to-own program from the store’s perspective? From the customer’s perspective?
- Do you believe Best Buy should continue this program? Why or why not?
Source: Abha Bhattarai, “A Best Buy Program Is Doubling the Price of Items for Some Customers,” Washington Post, February 27, 2020