Some car-related terms and phrases are complicated, but rent-to-own isn’t one of them. In fact, the meaning of rent-to-own is exactly what the name suggests. You rent the car during the agreement period, and at the end of this term, you become its owner.
How does rent-to-own work?
After your home, your car is possibly the most expensive purchase you’ll make. Often people fund the purchase with a car loan. However, if you have a bad credit history or a low credit score, you may find it challenging to get auto finance. Rent-to-own cars are another option. Basically, it allows you to own a vehicle without a traditional loan.
Under a rent to buy cars agreement, you’ll pay for its weekly use. You enter into a contract and will buy the vehicle at the end of the agreement period. The weekly payments cover the use of the car and contribute towards its ultimate purchase.
Once the rental period ends and you make the final payment, the ownership is transferred to you. The contract may require you to make a down payment at the start of the term or a lump sum amount at the end of the agreement period.
Pros and cons of rent-to-own
Rent-to-own may seem an attractive option, especially if you’re not eligible for a regular auto loan due to a low credit score. However, before you rush into the decision, you must do your research and understand the terms and conditions of rent-to-own car loans. Sometimes, this arrangement may cost you more over a longer term.
Is a rent-to-own car arrangement right for you? That comes down to your personal situation and preferences. Consider the following pros and cons to make an informed decision:
Pros of rent-to-own cars
- When compared to regular auto finance, rent-to-own agreements do not require extensive credit checks. Some lenders may not even do a credit check, which means you’re more likely to get approval even with a poor credit history. Don’t forget to check the rental amount against your budget to ensure that you can manage the payments each month.
- As there is no loan, rent-to-own arrangements do not have any interest component. If you opt for a regular car loan, the interest could stack up to several thousand dollars during its duration.
- When you make regular rental payments, it can help improve your credit score. Of course, your credit score may be negatively impacted if you delay or default on the rental payments.
- Some agreements for rent-to-buy cars include your insurance and registration costs as part of the weekly payments. This way, the amount you have to pay remains the same, and you can budget your expenses more easily.
Cons of rent-to-own cars
Of course, there are several cons to consider as well.
- For the duration of your rental, the company retains ownership, which is not transferred to you until the last payment. You don’t have the freedom to make changes to the vehicle to suit your needs. Additionally, you cannot use the car as security for another loan.
- As per the rent-to-own agreement, you may have to make a lump sum payment at the end of the contractual period to gain ownership of the car. The amount varies, and you should read the fine print to understand how much this will be if you go down this route before signing the contract.
- Compared to other options, rent-to-own car agreements may come with higher fees, such as costs for direct debit, account keeping, termination fees (if you break the contract before its end), and late payment penalty. Some of these charges may be substantial, and when combined with the rental payments, the rent-to-own contract may become very expensive over the long term.
- A regular car loan has a monthly instalment; however, rent-to-own contracts usually require more frequent payments. So you have to remember and manage these weekly payouts.
Before you opt for the rent-to-own option, take into account the pros and cons. You may need to pay higher setup fees for rent-to-own deals. Evaluate whether rent-to-own suits your financial situation and objectives.