Pros and Cons of Rent-to-Own Cars

Having bad credit undoubtedly makes life difficult when trying to make major purchases that require a loan. And if you have bad credit, getting approved for a standard auto loan might be an even bigger hurdle.

Although some prospective car buyers have turned to bad-credit auto loans to get the vehicles they want, others have considered rent-to-own cars as an option if they are struggling to pay auto loans.

What Is a Rent-to-Own Car?

A rent-to-own car is a vehicle that is offered to individuals under a specific agreement: You pay for the vehicle like you would when you’re renting a car, but instead of turning the vehicle in at the end of the term and losing the money you spent, a portion or all of the money goes toward the car purchase. Here’s an example of how it works:

Amy’s credit score is 540. After deciding on a rent-to-own car priced at $10,000, she made a down payment of $1,500.

Your weekly payment includes the fee you’re paying to rent the car and payment toward buying the car. Make sure you know the terms of your rent-to-own car’s payment distribution and whether more money is due at the end of the rental term in order to buy the car.

Related: 10 Best Tips for Cheap Car Rental Deals

Rent-to-Own vs. Rental Car Sales

Don’t confuse rent-to-own cars with some car rental companies’ rent-to-own programs. For example, the Hertz Rent2Buy rental car sales program promotes Hertz car sales by enabling customers to rent a vehicle they think they want to drive and test it out for three days. If you buy the vehicle, your rental fees go toward the purchase price.

To secure a rent-to-own vehicle, you must make a down payment and then make payments on the car, usually one payment per week or every two weeks. In addition to the down payment, the criteria for a rent-to-own application usually includes proof of ID, proof of residence and proof of income.

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Rent-to-Own vs. Leased Cars

The biggest difference between car leasing and renting is that at the end of the rent-to-own contract you will own the car. At the end of a lease contract, you do not own the car. Think of leasing like a rental with the option to buy.

This table breaks down the main differences between rent-to-own cars and leased cars:

Rent-to-Own Cars vs. Leased Cars
Consideration Rent-to-Own Cars Leased Cars
Ownership At end of rental term (usually 12-36 months), you own the vehicle. Payments are not applied to a purchase. At term end, vehicle is given back to the company.
Credit Checks Usually not required. Payments are often not reported to credit bureaus. Usually required
Down Payments Required Little to none required
Payment Frequency Weekly or biweekly Monthly
Payment Distribution Weekly or biweekly payment divided between rental fee and payment toward buying car Monthly payments go towards lease of car
Vehicle Age Usually used Usually new
Car Repairs Not included. Repairs and towing require the purchase of additional warranties Free repairs
Warranty Usually not included Included
Incentives Usually not offered Usually offered
Early Termination Down payment is usually forfeited Fees and penalties might apply

Make your payments on time, because if you miss just one, it might result in the dealer canceling the purchase portion of the agreement. Additionally, you might lose the payments you already made.

See Also: Best Loans for People With Poor Credit

Pros and Cons of Rent-to-Own Cars

Like most financial moves, going with a rent-to-own vehicle has its benefits and drawbacks. To decide whether you should try to take out a car loan or explore rent-to-own cars, you need to weigh the pros and cons. Take a look at each for this type of program to see if it’s the right choice for you.

Pros of Rent-to-Own Cars:

Cons of Rent-to-Own Cars:

Review your contract for terms regarding early termination. This can be critical if the car ends up needing a lot of repairs. You might decide a few months or a year into your purchase that you want to end the rental. Under the terms of your contract, it is likely you will lose your down payment and any money you paid for the purchase of the car if you do this.

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It’s a smart idea to investigate the dealership you want to work with to ensure it is a legitimate business. Also, run a check on the car itself to ensure you’re not buying a lemon. By taking the time to protect yourself under this circumstance, the benefits of buying a rent-to-own car could actually make this type of purchase worth it.

Barri Segal contributed to the reporting for this article.