DEFINITION of 'Lease To Own'

An arrangement where an individual enters into a lease agreement with an owner with the inclusion of a clause that typically gives the individual the right, but not the obligation, to purchase the item leased at a predefined price and time. More often than not, a portion of the total rental payment goes toward paying down the value of the item leased in the event that the renter wishes to exercise the option.

BREAKING DOWN 'Lease To Own'

For housing properties, the cost involved in lease-to-own agreements tend to be more expensive compared to standard rental agreements. In addition to paying rent, lease-to-own contract users need to pay an option fee, similar to an amount paid to buy a traditional stock option, and usually, a rent premium as well, which is not returned to the renter in the event that he or she does not exercise the option to buy the leased item.

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