Not to be confused with traditional leasing, a lease to own car is an agreement that you can find at a dealership that offers in-house financing. We cover how they work and what to expect.
In-House Financing and Lease to Own Cars
In-house financing is what it sounds like: the financing is done at the dealership. This also means that the dealer is your lender. Another name for a dealership that has in-house financing is a buy here pay here (BHPH) used car lot, or a tote the note dealer.
No matter the name, these dealerships are a one-stop shop for bad credit borrowers. The reason poor credit borrowers seek them out? The dealers often skip the dreaded credit check.
Most traditional lenders request your credit reports and largely gauge your ability to pay for a vehicle based on your credit score and history. Additionally, your interest rate is mainly based on your credit score, too.
In-house financiers tend to skip over the credit check, and simply verify income and ask for a down payment. Additionally, in-house financing dealerships can offer lease to own agreements, which aren’t available at traditional dealers.
Difference Between Financing and Lease to Own
The main difference between a lease to own car and an auto loan is that you don’t get your name on the title of a lease to own vehicle until you’ve made the last payment. This seems odd, but it’s done in part for the dealership and in part for you.
If you’re driving a lease to own car, and decide that you no longer want it, you can typically return the vehicle with no strings attached – your name was never on the title to begin with. This varies depending on the language in your loan contract, so be sure to read it thoroughly and ask about the consequences of returning the car early.
To qualify for a lease to own at a BHPH dealer, expect to need your check stubs to prove your income and a down payment. What you qualify for depends on what you make, and the down payment amount required often depends on the selling price of the vehicle. You’re also not financing a lease to own car, so there isn’t an interest rate to be concerned about.
What’s the Catch With a Lease to Own Car?
While the convenience and relative ease of qualification for lease to own cars are the more desirable features, the catch is likely to be the price and payment schedule.
Sometimes, lease to own vehicles require multiple payments in the month, like on a weekly basis instead of monthly. You may also be required to make the payments in person at the dealership, but this is becoming less common in this day and age. Be sure to ask about your payment options, since late fees are also common with lease to own agreements.
To make up for the lack of interest, the payments of a lease to own agreement could be expensive, and you can usually expect to pay more for the car than it’s worth.
How much more you pay depends on the vehicle and the dealer, and what kind of deal you can get into. While you may end up paying more for the car, the lack of a credit check and the ease of getting into a lease to own could be considered the trade-off in this scenario.
If you decide to seek a lease to own vehicle, once you get quoted a payment amount, ask about rental terms and see how many payments you’re making. Add all the payments together and see how much you’re going to end up paying altogether.
Another consideration to remember is that you’re going to be responsible for repairs, regular maintenance, and paying for auto insurance. Be sure to budget for these costs, too.
Other Bad Credit Auto Loan Options
If a lease to own car doesn’t seem like the right choice for you, you’ve still got other options if you have less than stellar credit.
There are dealerships with special finance departments that are signed up with subprime lenders. These lenders specialize in assisting borrowers in all types of credit situations, including: bad credit, no credit, and bankruptcy borrowers.
However, finding a dealer that’s in touch with subprime lenders can be hard to pinpoint. We want to help with that! Here at Auto Credit Express, we have connections with dealerships all over the states, including BHPH and special finance dealers. To begin the search for a dealership that can work with you, fill out our free auto loan request form.