Rent-to-Own Cars: Are They a Good Idea?

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If your credit score is low, you might consider exploring the pros and cons of a rent-to-own car.

For many people, a car is not a privilege. It’s a necessity. You probably need a vehicle to get to and from work, pick up your kids from school, or run to a store that’s not within walking distance of your home. If you are having a hard time getting a new car due to bad credit or other factors, a rent-to-own car could be a solid alternative.

Rent-to-own cars may come with more expensive monthly payments when compared to financing or leasing a car through a traditional lender. However, getting approved is easier than ever especially when financing options are low. Here’s what you’ll need to know to determine if this option is a good idea for you.

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What Is a Rent-to-Own Car?

Rent-to-own is not a concept we hear about often in the auto industry so it’s important to clearly understand how this type of vehicle ownership works. Normally, if you walk into a car dealership in search of a new car, you’ll immediately be asked about your credit score and or asked for permission to run your credit report. If you have poor credit, the dealer may only offer high interest rates or your loan application could be denied altogether.

A rent-to-own car doesn’t require any credit check. Instead, the car lot does in-house financing to approve you for the vehicle based on other factors, like your income. Car buyers typically make weekly or bi-weekly payments on your vehicle just like with a car loan. However, there is no interest associated with the payment (since it’s not based on your credit score) but rather a one-time auto financing fee that is often spread out across payments.

How the Rent-to-Own Process Works

If you need to buy a car and have bad credit, you can go to a car dealer or auto lot that sells rent-to-own cars. To apply, you’ll need to show a driver’s license, proof of residency, and proof of income. Since you won’t receive a credit check, you’ll need to prove that you have job stability and enough income to afford future car payments. You may also still need to provide a down payment as well along with a few references.

With rent-to-own, a portion of your car payment will go toward buying the used vehicle once your rental period is over. Payments are often collected weekly and range from $75 to $100 on average. Each company is different but your payment usually covers:

  • Sales tax
  • License plates
  • Registration fees
  • Limited-time extended warranty

Payment terms range from 24 to 36 months. Another thing to keep in mind is that rent-to-own cars often come with a one-time fee. Often called an acquisition fee, you can expect to pay $500 or more depending on the rental term agreement.

Once your rental agreement is complete and you’ve made all your required payments, the dealer will turn the title of the car over to you and you’ll own it outright.

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The Difference Between a Lease and Rent-to-Own

Getting a rent-to-own car may sound very similar to leasing a vehicle, but these options are different. Leasing a car allows borrowers to basically rent a vehicle for a fixed time frame. Then, at the end of the lease, you can return the vehicle and lease or finance a different car.

In a way, it’s very similar to leasing a home or apartment. Each month you pay rent to live in your home but eventually, you move out and get another residence. With a car lease, you do have the option to buy the vehicle once your lease is up, but this means spending even more money.

It’s clear that with rent-to-own, the ultimate goal is to own the car at the end of the rental agreement. This is why payments go toward the purchase of the car, unlike with a lease where you will be given a ‘buy-out’ amount at the end of your term if you wish to purchase the car.

Here are some other key differences to consider.

Credit check: Not only is a credit check required to lease a vehicle, but you’ll need to have excellent or good credit. Whereas, there are no credit checks with a rent-to-own vehicle. This also means that your payments won’t get reported to the three major credit bureaus.

Leases typically have lower monthly payments: Since great credit is required to lease a car, the payments are actually lower and more reasonable. The average monthly lease payment is around $199 to $250. Keep in mind when you lease a vehicle you’re also paying for depreciation along with interest and fees. This can make leasing more expensive than getting a traditional car loan.

Leased vehicles tend to be newer: One of the major perks of leasing a car is that it will be a new vehicle or newer model with all the modern features. Rent-to-own cars tend to be older but are still fully functional. Car dealers may decide to offer high-mileage cars that are still in good condition as a rent-to-own option. They do this knowing that they’ll make more money on the rental fees vs. selling the car directly.

Rent-to-own cars come with fewer limitations: With a lease, you may have certain mileage limitations you need to stay under to avoid a fee at the end of your leasing term. Rent-to-own cars likely have a higher mileage and fewer limitations for drivers since the intention is to own the car outright.

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Which Companies Offer Rent-to-Own Vehicle Options?

Most auto dealers will offer lease-to-own or cars you can lease for a fixed period of time. You can also visit any dealer’s website and search for leasing specials. When it comes to rent-to-own cars, there are certain dealerships that solely sell these types of cars, as well as traditional auto lenders.

You can find a rent-to-own car both online and in your local area. The key is to select an auto dealer that does their own financing and doesn’t outsource through a bank or other lender. Auto Credit Express and The Car Connection are two options to start with that have great reviews.

What Happens if You Don’t Make Payments?

If you fail to make payments on your rent-to-own vehicle, it could get repossessed by the dealer. Be sure to read the fine print before signing a rental agreement since some dealers can opt to disable the car remotely if you’re unable to make a payment and fail to return the car. This creates an inconvenient hassle that could otherwise be avoided.

As with any type of payment, communicating with the company when you run into financial trouble is key. The auto dealer may have some kind of deferment program where you can skip a payment for one month and pay a higher amount the following month to catch up.

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Pros and Cons

Rent-to-own cars are not a top choice for most buyers due to some of the clear drawbacks. Still, this could be a great solution for you if you’ve exhausted some of your other options. There are some appealing aspects of rent-to-own but you’ll need to carefully weigh the pros and cons to determine what’s best for you.

Pros:

  • No credit check required
  • No interest
  • Able to own the car at the end of the rental agreement
  • Pay the dealer directly (sign and drive at the same place)

Cons:

  • You could end up paying more than the car is worth due to a dealer markup
  • Rental fee
  • Down payment still required
  • Weekly payments
  • Few quality warranty options for older cars
  • No opportunity to build credit with on-time payments

Is a Rent-to-Own Car a Good Idea With Bad Credit?

Rent-to-own is hardly ever cheaper than financing a car the traditional way. If your credit score is good (or even average), you might be better off getting financing to purchase a new or used car. Rent-to-own is something to resort to if you have a low credit score and few other options.

If you’re working on rebuilding your credit, car buying can be a challenge but there are options. Consider getting a cosigner or even exploring some subprime auto loans instead.

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About The Author


Choncé Maddox

Choncé Maddox is a Certified Financial Education Instructor (CFEI) and personal finance freelance writer. Her work has been featured on LendingTree, CreditSesame, and Barclaycard. She earned a Bachelor's degree in Journalism and Communications from Northern Illinois University and resides with her family in the Chicago area.


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