As a borrower, one of the most important factors taken into consideration when applying for a loan is your Fair Isaac Corporation (FICO) score. This scale ranges from 300 to 850, and is an assessment of how you have handled previous debt, and how likely it is that you will be able to pay back future debts on time.
Keeping a good score of at least 650 will help you get approved for loans. Possessing a score lower than 650 may cause lenders to not enter into a loan agreement, or require you to pay a significantly higher interest rate on the loan. This can in turn negatively affect your chances of buying a new house, paying for a new car, or receiving a small business loan.
Raising a low FICO score can seem impossible, but lease-purchase programs can actually help you raise your score while buying essential items you need anyway. If you’re curious about how this possible, keep reading.
What Is A Lease-Purchase Contract?
A lease to purchase program is a method of financing. It can also be referred to as no credit needed financing, as you do not need to have a high FICO score to enter into the agreement. Instead, you make monthly payments on the item until it is fully paid off. Unlike a loan, the consequence for not meeting the contract agreement is that you forfeit the product you took home. For example, a popular commodity buyer will enter into a lease-purchase agreement for its furniture. So if you wanted to finance a $300 couch, your agreement may state that you must pay $57 a month for the next 12 months, as opposed to paying the full $300 upfront.
Because you technically do not own the couch until the last payment is made, the agreement states that you must return the couch if you cannot make the payments for any reason. You will also not be reimbursed for any pervious payments if you break the contract. This can be a good thing as a buyer, however, as you can also exit the agreement at any time. So a lease-purchase program can act as a trial period to see if you would even like having the new couch in your space.
How Does Lease Purchasing Affect Your FICO Score?
A lease-purchase program can raise your FICO score if you make on time payments and complete your end of the agreement. This is because part of your FICO score is a reflection of how reliable you have been with paying past debts on time. You can also use previously completed lease-purchase agreements to demonstrate to lenders that you are a responsible borrower. At Okinus, we help you make responsible choices by giving you a furniture financing calculator tool to help you find the right couch to finance.
What Is The Furniture Financing Calculator Tool?
The furniture financing calculator tool is designed to help you make find a lease-purchase program that works for you. It lets you input your desired terms of the agreement, like how often you would like to make a payment for example, and calculates how much your payments will be each payment period. You can use this tool to find a product that works with your budget, and you can even compare how different down payments will affect your overall payment cycle. In addition to furniture, you can also use this tool for jewelry financing, appliance financing, optical financing, and many other finance options.
Final Thoughts
The average American has a FICO credit score of 700, and you generally need a score of at least 650 for lenders to offer you a lower interest rate on your loan. If your current score is below 650, lease to purchase programs offer a convenient way to help demonstrate your reliability as a borrower. You can even use our furniture financing calculator tool to help you prepare to enter into a lease-purchase agreement by comparing payment options. Contact us today and let us help you build a strong credit history.
