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If you need a car but don’t have the cash or good credit to buy one, then your options are limited. You can borrow a car from a family member or friend, buy a car at a “buy here, pay here” dealer, or rent-to-own a car. But is that last option – renting to own a car – really a good idea?

How does rent-to-own work?

A used car AGAT Profi dealership in Volgograd, Russia
A used car dealership | Dmitry RogulinTASS via Getty Images

Renting to own a car works exactly as it sounds; you rent a car and a portion of the payment goes toward buying the car at the end of the rental period. According to Credit Karma, the allure of rent-to-own programs is that dealers typically work with buyers that have no credit or bad credit as they usually don’t run credit checks. Instead, buyers need to provide proof of income and proof of residence in addition to a number of personal references.

Rent-to-own buyers also pay the dealer directly on a weekly, bi-weekly, or monthly basis as opposed to a third-party lender. Additionally, the inventory selection at some lots might not be as extensive as traditional car dealer lots.

There are some advantages with rent-to-own car programs

Cars sit idle at the Hertz Rent-A-Car rental lot.
Cars sit idle at the Hertz Rent-A-Car rental lot. | Justin Sullivan/Getty Images

While renting to own a car might not sound as satisfying as actually purchasing one, the option does have a few advantages:

  • You own the car at the end of the rental period: After making all of the rental payments, you will own the car in the end. This is even an advantage over leasing in which you need to pay the residual value of the car at the end of the lease term to own it.
  • No credit check: As stated before, rent-to-own dealers don’t check your credit score or history.

There are disadvantages with a rent-to-own program as well

Tourists load their luggage in their rental car.
Tourists load their luggage in their rental car. | PASCAL POCHARD-CASABIANCA/AFP via Getty Images

It’s apparent that a rent-to-own program is great for a wide variety of buyers in a challenging credit situation, however, there are some disadvantages too:

  • You will need to pay more frequently: While the terms of some rent-to-own programs can differ, many of them require you to pay the dealer every week or two weeks, not monthly. This can get demanding depending on your current pay schedule.
  • Older cars without a warranty: Most cars in rent-to-own programs are older and have higher mileage. That means they are usually out of warranty as well, so you’ll have to pay out of pocket for any repairs during the time you have it.
  • High interest rates: Rent-to-own cars typically come with high interest rates.
  • Not good for credit building: While leasing or financing a car can build your credit, renting to own a car does not because the payments are not reported to the credit bureaus.

Is renting to own a car a good idea?

Not really. While a rent-to-own program can help anyone with poor or no credit in their times of need, it’s not the best financial decision. As you can see, the cons outweigh the pros and there’s a possibility that a rent-to-own car can end up being a financial burden more than a trusty set of wheels.

If anything, a rent-to-own car should be a last resort to finding sub-prime financing, getting a co-signer, or buying a cheap car from a private party. All of those options can lead to a better financial and credit situation in the end. Unlike a rent-to-own program, which could end up leading to more headaches if the car breaks down or more financial stress.


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