When your credit score isn’t the best and you’re finding it difficult to get approved for an auto loan, you may be considering a rent to own car. We go over the possible effects of a rent to own vehicle on your credit, and if one is right for you.
How Rent to Own Cars Work
To get a rent to own car, you first need to find a dealership with in-house financing that offers this type of contract. With in-house financing, your dealer is also your lender.
At in-house financing dealerships, your credit score isn’t usually considered when you apply for a rent to own vehicle. This can be a big break for those with bad credit, no credit, or unique credit situations, and for those who need a car right away. The dealer, however, usually needs proof of income, proof of identity, a down payment, and may require weekly or bi-weekly payments instead of monthly payments.
One of the biggest differences of a rent to own vehicle compared to an auto loan is that you don’t pay interest charges. You’re not taking out a loan, and therefore, won’t pay any interest charges while you’re renting the car. The total cost is simply set ahead of time.
Another big difference is that the dealership holds the title, and your name won’t be listed on it. This means you have no ownership rights to the vehicle unless you decide to purchase it at the end of the rental term. At the same time, you’re still responsible for any repairs or regular maintenance – such as oil changes – that come up while you’re driving the car.
However, if you’re looking to improve your credit score with a rent to own vehicle, it may not be able to help.
How a Rent to Own Contract Affects Your Credit
When you apply for a rent to own car with an in-house financing dealership, they don’t normally check your credit. This means your credit reports won’t reflect a hard inquiry (or hard pull), and you won’t have a temporarily lower credit score.
However, with a rent to own vehicle, your timely payments also may not appear on your credit reports – some rent to own lots don’t report on-time payments. This means even if you finish the rental contract without any bumps in the road, your credit score won't reflect it.
Late and missed payments are a different story. These are very likely to be reported by the dealer. Any late/missed payments can stay on your credit reports for up to seven years. And keeping up with payments on a rent to own car can be difficult, especially if you have to make them each week.
Some in-house financing dealerships also require their customers to make the payments in person, which can be a big hassle if you’ve got a busy schedule, although some dealers have online paying options. Before you sign a rental agreement, be sure to ask about the payment option that works within your lifestyle so you can avoid missing a payment simply because you couldn’t make it to the dealership on time.
If you’re considering a rent to own vehicle because of your bad credit, but you want to improve your credit score, a subprime auto loan could be what you’re looking for.
Other Bad Credit Car Loan Options
Subprime auto loans are for borrowers with less than perfect credit, and subprime lenders work through a dealership’s special finance department. While your credit reports are pulled and reviewed, lenders know that borrowers are more than just a number, so they use many other factors to determine your eligibility for a car loan.
Since going through a subprime lender means you're taking out an auto loan based on your credit, it's reported to the credit reporting bureaus. With regular, on-time payments, you can improve your credit score. A successfully completed car loan also looks great on your credit reports for future loan opportunities.
At Auto Credit Express, we know which dealers are signed up with subprime lenders, and we help bad credit borrowers get matched to one in their local area. To get started, simply fill out our free auto loan request form, and we’ll get to work!