If you’re considering a rent to own car, then your credit score may have seen better days. Many bad credit borrowers are drawn to rent to own agreements because they’re usually easy to get into. But are they worth it?
How Rent to Own Cars Work
Dealerships that offer rent to own vehicles are called buy here pay here (BHPH) lots. They only sell and rent used cars, using in-house financing.
In-house financing is when the dealer that rents you the vehicle is also your lender. Since they’re playing a double role as a lender/dealership, they usually skip the dreaded credit pull. Because of this, many bad credit borrowers seek out BHPH dealers for a chance at auto financing.
With rent to own cars, you enter a rental agreement where you make payments on the vehicle until you own it. It sounds like financing, but with a rent to own car, you don’t have to worry about interest rates. While you won’t have interest charges to worry about, it's common to need to make weekly or biweekly payments instead of the typical monthly installment.
To get into a rent to own vehicle, you may need a down payment to show you’ve got skin in the game. The amount you’re required to put down can vary, but they can sometimes be around 20% of the car’s selling price at BHPH dealerships.
When you sign a rent to own agreement, you don’t get your name listed on the title until you’ve paid off what you owe. However, you’re still responsible for maintaining auto insurance and any maintenance or repairs the entire rental term, and once you own it.
At the end of the rental contract, one of two things happen:
- The dealer signs over ownership of the vehicle.
- You pay the remaining amount you owe on the car, and then you get ownership rights.
Once you’ve paid off all you owe and the dealership signs the title over to you, you can register the vehicle in your name and it’s yours to keep.
Just like everything, there are two sides. Rent to own cars have their fair share of pros and cons. If a rent to own vehicle sounds like something you want to invest in, consider these points.
The Pros of Rent to Own Cars
Let’s start with the good side of rent to own cars. If you’re in a financial pinch or you have poor credit, a rent to own vehicle could be your ticket in getting a car quickly. Most in-house financing dealers can have you in and out on the same day.
Here are other pros of rent to own vehicles:
- Usually no credit check required.
- Typically a quick and easy option for bad credit borrowers.
- You may have the option to return the car without penalties.
- No interest charges to pay.
- The average rental term is around two to three years.
If you need a vehicle quickly and you want it paid off in less than five years, then rent to own cars could be what you’re looking for. However, before you sprint out the door for your next ride, consider the cons.
The Cons of Rent to Own Cars
Like anything, there are some downsides to renting a vehicle you plan to purchase. These may not impact your decision, but it’s important to know what you’re getting into.
Cons of rent to own cars include:
- Used vehicles are your only option.
- Dealership may not report your timely payments, so credit repair isn’t always possible.
- Weekly or biweekly payments may be required (sometimes you're required to make payment on-site).
- Expect late fees for payments even one day late.
- You don’t get the title until the end of the agreement.
- Cars aren’t typically covered under their manufacturer warranty.
- You’re responsible for all repairs and maintenance, even if you don't keep the vehicle.
We’ve managed to gather more cons than pros for rental cars, but some borrowers may feel like a BHPH dealer is their only chance at getting the vehicle they need.
Bad Credit Auto Loans
Rent to own cars from BHPH lots aren't the only option for borrowers with poor credit. Subprime lenders that are signed up with special finance dealerships can help, too.
While these lenders do check your credit, it’s not the only thing they use to determine your ability to take on an auto loan. They’re equipped to work with borrowers in all types of credit situations such as bankruptcy, repossession, no credit, and bad credit.
The biggest plus that subprime car loans have over rent to own agreements is that subprime auto loans can repair your credit. Subprime lenders always report loans to the credit bureaus, so with on-time payments, you can restore your credit score.
When you have a lower credit score, building your credit up should be a priority, since a better credit score means qualifying for a better interest rate and enhancing your chances of getting into a vehicle later on.
Finding the Right Route for You
When you have bad credit, finding a lender that can work with you feels impossible, but it really isn’t. There are lenders for borrowers in all types of unique credit situations. If you’re ready to find a dealer, then start right now with us at Auto Credit Express.
We’ve created a nationwide network of dealerships that are signed up with the lending options that bad credit borrowers need for car loans. Begin by filling out our quick, secure, and free auto loan request form. We’ll look for a dealer near you with bad credit options to fit you.