One of Best Buy's newest offerings is a lease-to-own program, a payment option offered in most parts of the country but largely barred in Minnesota.

So when the Richfield-based retailer rolls out the program to nine more states in coming months, its home state still will not be one of them.

"The whole industry is under extra scrutiny because it targets people with bad credit with higher-than-usual [effective] interest rates because they are a high credit risk," said Aaron Hall, a Minneapolis business attorney.

Yet with more young adults without established credit, making it more difficult for them to get credit cards, more mainstream retailers are starting to offer any number of "buy now, pay later" options that in the past might have been available only at niche retailers. Customers get the items right away and then pay them off in installments until they own them. The terms, fees and interest rates vary by program.

For Best Buy, it's one more way to reach consumers.

"We always offer customers our branded credit card first," Best Buy CEO Corie Barry told analysts last month. "However, there are people who may not be interested in getting a credit card or are unable to qualify for it because of low credit scores, or in many cases, simply no credit history. That's where our new lease-to-own program comes in."

The program, she said, has been bringing new customers to Best Buy stores — as well as some who haven't been to them in a while. Computers have been the most popular purchases so far.

Barry, who became CEO of Best Buy in June, plans to discuss the lease-to-own program, as well as Best Buy's overall strategy going forward, at an investors meeting in New York on Wednesday.

Best Buy's partner in the program is Progressive Leasing, which handles similar programs for other retailers such as Big Lots and Mattress Firm that sell big-ticket items; jewelry stores such as Helzberg Diamonds and Kay Jewelers; and mobile-phone stores such as Cricket Wireless. also linked up with the company last year.

In total, Progressive Leasing says its services are offered in more than 30,000 store locations in states that allow the option.

Best Buy's lease-to-own option, which launched in about two-thirds of Best Buy's stores this spring, will expand to the nine new states, including New York and California, by the end of next month just as the holiday shopping season begins.

Twice the price

Most states regulate rent-to-own transactions in some way, with some capping how much above the retail price can be charged over time in order to guard against predatory practices.

In addition to Minnesota, Best Buy's lease-to-own program will not be offered in four other states — Wisconsin, New Jersey, Wyoming and Vermont.

Aaron's, the Atlanta-based parent company of Progressive Leasing, has 1,500 lease-to-own stores, none of them in Minnesota because of state regulations.

Texas-based Rent-A-Center, another big player in this space, once had its namesake stores in Minnesota but had to change its model here after a court ruling in the 1990s made it difficult for such stores to do business. It now has 17 Minnesota stores under the Home Choice brand where it offers a different type of installment payment option that meets state regulations. It has a similar arrangement in Wisconsin where it has 27 stores under the Get It Now! name.

In Best Buy's program, Progressive Leasing takes ownership of the items and handles the terms of the leases. Customers are charged the retail price of the item plus $79 in leasing costs if they pay off the item within the first 90 days.

Best Buy executives have said a "significant number of customers" are using that 90-day purchase option.

But the default option is a 12-month plan. Customers end up paying twice the price of the item if they pay it off over a year. Progressive notes that customers also have an early purchase option between the 90 days and 12 months and can cancel the agreement anytime.

Stephen Surman with Progressive Leasing said the rental costs factor in the risk the company takes on should customers lose or damage items as well as if customers fail to pay.

The rental agreement "is not so bad" if you pay it off in the first 90 days, said Ted Rossman, an industry analyst with But he said the added costs if you pay it off over 12 months is way more than you would pay on a typical credit card. Consumers would be much better off waiting if they can until they have enough cash to pay for such items, he said.

"There's always going to be some level of discomfort with rent-to-own," said Anthony Chukumba, an analyst with Loop Capital. "But my perspective is these customers, they don't have any other options. … Remember, in a lot of cases, we're not talking about, 'I want a new TV,' but literally, 'My refrigerator broke. I need a new one.' Or, 'My washer and dryer broke.' "

Bad credit or no credit

With Best Buy and other retailers adding lease-to-own options, it not only gives hard-pressed customers a much bigger selection to choose from but also much more competitive prices on products than are offered at rent-to-own stores, he said.

Aaron's says that the market for its services is potentially 25 to 35% of the U.S. population based on the number of people with subprime credit scores.

But it could be even bigger if you also take into account people who don't have enough information on file to generate a score, Rossman said. That's partly an unintended consequence of the Credit Card Act that went into effect in 2010.

"It has a lot of good consumer protections in it, one of which was pushing the credit card marketers off college campuses and with a few exceptions setting 21 as the minimum age to get a credit card," he said. "It's preventing young adults from getting into debt, which was a big problem with Gen Xers getting cards like candy in college."

But it's also made it harder for young adults to establish credit, so it has become common for people in their early and mid-20s to get denied when they apply for credit cards. Immigrants, too, often have no credit history in the United States because even if they had good credit in their home countries, it doesn't transfer to the U.S., he said.

Useful in a crunch

In addition to lease-to-own options, a number of "reverse layaway" programs with new point-of-sale lenders have been popping up to help fill in this gap. The terms vary with each platform, but customers generally pay the retail price spread out in payments over six to eight weeks and are charged late fees or interest if they miss payments.

Minneapolis-based Sezzle is one such company that recently went public. Another, Afterpay, is an option to pay for items on apparel websites such as Anthropologie, DSW and Urban Outfitters. And Target has been doing a small test with Affirm, which already works with brands such as Warby Parker, as a payment option for a handful of electronics and home items.

Kimberly Palmer, personal finance expert at NerdWallet, said there are times when these programs can be useful in a crunch if someone really needs something right away. But consumers should be judicious before using them.

"Essentially, you're buying something you can't afford right now, so if it's something you don't need, you probably should just wait until you can afford the item," she said.

Kavita Kumar • 612-673-4113