If you’ve been turned down for an auto loan because of your bad credit, you may be considering a rent to own vehicle contract. Here, we’ll explore how rent to own cars work and compare them to traditional auto loans so you can decide if it’s the right choice for you.
How Do Rent to Own Cars Work?
With a rent to own contract, it’s rather true to its name. You rent a car for a set period of time, and then you have the right to purchase the vehicle once the rental term is over.
To get a rent to own car, you need to find a dealership with in-house financing. In-house financing is when the dealer is also the lender – meaning they don’t use a third-party lender to approve the loan, they finance these vehicles themselves.
Because rent to own dealerships don’t rely on third-party lenders to approve a loan, they don’t typically check your credit score. What they do check is your income and ability to keep making the monthly payment. They usually also require a down payment for approval.
Unlike an auto loan, where your name and the lienholder are both listed on the title, with a rent to own car, your name isn’t listed on the title until you purchase it at the end of the rental term. Until then, the dealership holds the title.
Rent to own cars are almost always used vehicles. If you’re looking to rent a new car with the possibility of purchasing it at the end of the term, leasing could be the answer – if you have good credit. It’s often harder for borrowers with bad credit to qualify for a traditional car lease.
Now that you understand the nitty-gritty of rent to own, here’s a pros and cons list that may help you decide if it’s the route you want to take.
Pros of Rent to Own Cars
Here are some pros associated with rent to own vehicles and no credit check dealers:
- Need a car now – If you need a car in a pinch, a rent to own vehicle could be an easy way to get into a car quickly, if you have the income and a down payment ready.
- No credit check – With a traditional auto loan, they check your credit score for approval. As mentioned, these rent to own dealerships with in-house financing don’t normally check your credit score, which is a major plus if it isn’t the best.
- Surrender the vehicle – Some rent to own dealers allow you to simply surrender the vehicle to them if you find you can’t afford it any longer. You don’t own the car and your name isn’t on the title, so you’re not tied to anything, but you won’t get money back. Not all in-house financing dealerships do this, so be sure to read the fine print.
- No interest charges – A rent to own contract isn’t like a regular auto loan, so you won’t be paying interest charges. The total cost will simply be set ahead of time. You’re renting, not financing.
If you needed a car yesterday and your bad credit won’t get you regular financing, rent to own vehicles can be the answer. But what are the drawbacks?
Cons of Rent to Own Cars
Before you find an in-house financing dealership, here are the cons that can come with rent to own cars:
- Frequent payments – Rent to own dealers sometimes require their customers to pay weekly or biweekly, as opposed to monthly. Some also require that these payments be made in person.
- Credit score may not improve – While in-house financing dealerships don’t check your credit, they also may not report your timely payments to the credit bureaus, either. In this case, even if you made every single payment on time during the rental agreement, your bad credit score won’t see a boost. Ask the dealer if they report on-time payments to the credit bureaus ahead of time.
- Report missed or late payments – Rent to own dealerships aren’t likely to check your credit, but they’re likely to report missed or late payments, and repossessions. Negative marks on your credit reports can remain for up to seven or 10 years.
- Late charges – Many of these dealers also charge late fees, sometimes of $25 or more for each missed payment, which can add up quickly if you have weekly payments and you’re behind.
- Limited vehicle choice – With a rent to own contract, your options are going to be limited to used vehicles only.
- No warranty – Because the rented car is used, and from an in-house financing dealership, the vehicle won’t be covered under a manufacturer warranty. This means if there are any repairs needed, you’re responsible, even though you have no ownership rights to the car.
To sum things up, while these dealers don’t check your credit, a rent to own contract can have many downsides.
Bad Credit and Other Auto Loan Options
When you have bad credit, you may feel like you can’t go to a regular dealership. But there are regular dealers with special finance departments that offer loans through subprime lenders. Lenders that offer special financing use more than your credit score to determine approval, and they report your on-time payments to the credit reporting agencies, which can help build your credit score for future car purchases
If you’re ready to build your credit score with an auto loan, and renting a vehicle doesn’t feel like the right avenue for you, we want to help. At Auto Credit Express, we’re connected with dealerships nationwide that have special financing departments, catered to bad credit borrowers. We take the hassle out of finding a dealer with bad credit lending options in your local area. To get started, simply fill out our free and easy car loan request form.