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    How Does Rent-To-Own Work?

    How Does Rent-To-Own Work

    In the event you need to obtain an auto loan with a credit score well-below the minimum threshold, weaker credit can turn into a huge obstacle. While some buyers opt for options like subprime auto loans, there is an option called rent-to-own that strikes the perfect balance when you have difficulties obtaining approval for a standard car loan.

    A rent-to-own car is an agreement wherein the buyer pays for the car in a way they would pay if they rented the vehicle. However, at the end of the term, a portion of the total money paid is added to the car’s selling price. Usually, buyers need to make a down payment, then start making frequent payments on a weekly or bi-monthly basis. 

    Compared to subprime auto loans, a rent-to-own car is easy to get and doesn’t require any credit check. There are no interest rates and you'll be paying only the rental fee which will go towards the overall cost of the car. However, you might have to bear the dealer markup costs.

    Keep reading to take a deeper dive into this novel car ownership method.            

    An Example

    Let’s take a simple example to understand rent-to-own car terms. 

    Suppose your credit score is around 540 and you opt for a rent-to-own car with a price tag of $10,000. You agree to make a down payment of $1,500 and pay rent of $80 per week to drive the car around. Accordingly, you’ll be making a monthly payment of $320.

    When you make the payment for a total of 3 years (156 weeks), the total amount paid will be ($80 x 156) = $12,480 + $1,500 (down payment) for a grand total of $13,980 by the end of the term.

    The weekly payments include both the rent fees for the car and the payment made for purchasing the car. Still, before you agree to any similar option, make sure to consult the lender about hidden fees or costs.

    What Is The Difference Between Rent-To-Own And Rental Car Sales?

    The major difference between rental car sales and the rent-to-own option is the amount you pay, and the responsibilities you have to bear. However, there are some other major differences between the two including:  

    • Ownership - In the rent-to-own option, you are not the owner of the car until you make all the weekly or monthly payments whereas in the rental car sales option, you buy the car and own it outright.
    • Down Payment - In the rent-to-own option, you need to pay a monthly installment along with the first-month payment. Again, while making the down payment you also need to submit ID proofs, as well as proof of income and residence. In the rental car sales option, you need to pay a cash price which includes everything. 
    • Monthly Payments - The monthly payments are quite lower when compared to the rental car sales option. 

    Pros And Cons

    Just like other financing options have their own pros and cons, rent-to-own also comes with a particular set of advantages and disadvantages you need to consider including the following.. 

    Advantages Of Rent-To-Own Cars 

    • No Credit Check - Compared to other car-ownership options, the rent-to-own contract is much easier to grasp. The light and readily understandable policy makes it highly feasible for everyone involved. 
    • No Interest - Given there is no middleman or outside parties involved with a rent-to-own option, you don’t have to pay any kind of interest either weekly or monthly for the car. The payment you make every week or month is nothing but the rental fees and all the money goes towards purchasing the car. 
    • No Impact On Credit Report - Even if you are late making the weekly payments, you won’t be charged for any kind of penalty or late fees. Hence, this wouldn’t come with any impact for your credit. By comparison, if you are accessing this option through a dealer, your credit would surely be affected by poor repayment behavior. 

    Disadvantages Of Rent-To-Own Cars 

    • Can Be Expensive - One of the biggest disadvantages of the program is that you would end up paying a larger amount than the car is actually worth. Although you aren’t paying any interest, you will still end up paying a larger amount than the upfront cost when you sum up the payments. 
    • Frequent Payments - Compared to other financing options, in this option, you would have to make frequent payments. The payments are much more frequent compared to other options such as leasing or purchasing the car.
    • No Warranty - These contracts don’t have any kind of warranties. Hence, if your car breaks down or is damaged as soon as you start making monthly payments, you are not eligible for any kind of protection or claims from the manufacturer or dealership.


    Before investing in the car, make sure you have reviewed every part of the car to check for any damages. Additionally, speak with the dealer to verify if there are any hidden fees or additional payments at the end of the term.