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What Are Rent-To-Own Car Loans? Do You Really Need One?

  • Auto Refinance
  • Natasha Young
  • 7 minutes

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You can still get the car you need even if you don’t have the money to pay for it outright. However, your options are constrained if you have poor credit. There is still the possibility of a rent-to-own agreement, which may seem preferable when weighed against other options. Read to know more about rent-to-own car loans.¬†

Rent-to-own cars | Refinance you car with Way.com and lower your car payments

What is rent-to-own? 

You can get a car on a rent-to-own loan basis without any credit checks. This process is handy, especially when you have a bad credit history. You will be asked to bring proof of your income, identity, and residence. When you¬†rent-to-own¬†a car, you make payments to the car dealership. If you make all of your payments, you will get the ownership at the end of your rental agreement. But the car you buy probably won’t have a warranty, and¬†rent-to-own¬†might not help you build your credit.¬†

How rent-to-own works 

With a rent-to-own car, a big chunk of your car payment goes to buying the used car when your rental period ends. Unfortunately, rent-to-own car dealers profit mostly from people with low credit scores or bad credit history and don’t usually check credit. ¬†

Rent-to-own stores might also ask for a down payment. Payments on a rent-to-own car are usually made monthly, twice a month, or even weekly. And they usually go straight to the dealership instead of to a third-party lender like a bank. 

What is a subprime loan? 

A subprime loan is your best bet if you are researching ways to finance your car purchase and have a low credit score. Subprime loans have higher interest rates than similar prime loans. And may also have prepayment penalties if the borrower pays off the loan early. You are eligible for a subprime loan if your credit score ranges from 580 to 619. However, subprime auto loans can have different fees, so do your research before signing up for one. 

How do subprime loans work 

A subprime auto loan works the same way as getting any other loan. It is possible for you to apply online or in person at a bank by filling out a form with the necessary personal information. When you apply for a subprime auto loan, the lender checks your credit history to see if you qualify and, if so, at what interest rate.  

The lender’s approval depends on your credit history as a subprime auto loan is for people who want to buy a car but can’t get a prime loan as your credit score matters. Most of the time, the loan’s APR is much higher than the APR on a regular auto loan.¬†

What is the average monthly car loan payment in the US?

What is leasing? 

Leasing is a type of loan that is similar to financing. Instead of paying for the car with your monthly payments, it’s more like you’re renting it for the length of your lease. Each month, you pay for the car’s loss in value and interest and fees. When the lease is over, you can either buy the car outright or lease another one.¬†

The dealer will check your credit report when you opt for Leasing. If your credit is good, you’ll get a lower rate, which will make your monthly payment less. If you got bad credit or none at all, your rent would be much higher. Or even worse, you won’t be able to get a lease at all. And the credit bureau will keep track of how you pay back what you owe.¬†

Read all about car leasing to know about how car leases work. 

Rent-to-own vs. Subprime loan vs. Leasing 

The biggest difference between a regular lease and a rent-to-own deal is who owns the car when the lease is over. When you rent own a car, you usually get to keep it when your rental time is over. But when you lease a car, you’re really just renting it for the length of the lease. You pay for the car’s wear and tear every month, plus interest and fees. ¬†

Towards the end of the Leasing, you don’t own the car, but you can usually choose to buy it, start a new lease on a different car, or just walk away. When you lease a car, the dealership has to check your credit, unlike when you rent to own. Your credit can affect whether you get a lease and how much your monthly payment will be.¬†

In the case of subprime loans, the interest rates and your monthly payments will fall on the heftier side. And a loan is assured even with bad credit. Of course, there also stands a possibility of repossession of your car. But with rent-to-own, your credit is on the safe side and doesn’t take any hit, as no credit checks happen.¬†

Pros of rent-to-own

Vehicle ownership comes to you toward the end

Most rent-to-own deals let you pay for a car over time until you have enough money to buy it straight away at the end of the rental period. But there will be additional processes involved to take over the ownership. So make sure to double-check everything and get out of all the liabilities properly.

Your credit doesn’t take a hit

Most rent-to-own dealers don’t check your credit, so you’re likely to get financing regardless of your credit score or how long you’ve had credit.

Your loans will have manageable interest rates

All you’re paying is the rental fee, which goes toward the whole loan amount, so there’s no extra interest. But remember that you are likely paying the dealer’s markup.¬†

Cons of rent-to-own

You have to pay more frequently 

Depending on how often you pay and how the rental agreement is written, you may have to pay the rent-to-own car dealership often. You might have to pay every two weeks or even every week instead of every month, which can be hard to manage depending on how often you get paid. Keeping track of payments that come more often could also make it difficult to avoid late fees or payments that aren’t made on time.¬†

Older cars come with no warranty 

When you¬†rent-to-own¬†a car, you can only choose from what’s on the dealer’s lot, which is usually older cars with high mileage and no warranty if something bad happens to the car after you sign the contract. Still, before the warranty expires, you must pay for the repairs.¬†

Variable interest rates 

Depending on the dealer, the interest rates and other fees you have to pay will differ, but a rent-to-own contract can have high-interest costs. 

You may not be able to build your credit 

Your payment history is sent to the credit bureaus when you lease a car. So, naturally, this affects your credit score. But this doesn’t always happen with rent-to-own cars, so making payments on time might not help you build credit.¬†

Alternatives to rent-to-own cars 

Apart from subprime auto loans and car leasing, you can opt out of the following if you are in search of alternatives to rent-to-own: 

Getting yourself a co-signer 

It is easy to get A co-signer who is equally responsible for the loan as they agree to pay back your loan if you don’t. This can be one from your family or friend. If your co-signer has good credit, it could make getting a conventional auto loan easier and even help you get a better rate.¬†

Saving up for a down payment 

If you can wait, save some money for a down payment on a car. A down payment can help your chances of getting a loan and might even help you get a better APR on your auto loan. 

Buying from a private seller 

If you have some cash on hand, you might be able to get a cheap used car outright from a private seller or at a car auction and avoid getting a loan. 

Rent-to-own cars | Refinance you car with Way.com and lower your car payments

Penny for your thoughts 

You might not save money with a rent-to-own car deal, but depending on how much money you have each week, it could be a good option. Also, it will probably be easier to get out of a rental agreement than a subprime loan. 


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