With the rising fuel cost, there has been a new trend in car ownership: rent-to-own agreements. These agreements are growing in popularity, and many people want to know what they are all about. This article will provide you with an overview of how these agreements work to decide if it is the right option for you.
What are rent-to-own car agreements?
This type of financing allows the borrower to drive away in their new car immediately after they sign all necessary paperwork without having to wait for long periods.
The only requirement with this form of financing is that the customer has good creditworthiness and can make monthly payments on time. There are no other requirements, such as down payment or trade-in vehicle. Rent-to-own cars are a great way for people who have bad credit to get a car.
The customer will make monthly payments until the total loan amount is paid off. After that point, they can then own their vehicle or trade it in and purchase another one from the dealer with better financing options if desired.
During this period, where they are making monthly payments, the customer will have the option to buy their vehicle for a lump sum amount. This typically happens at the end of five years or less and is usually an affordable price.
Rent-to-own cars are advantageous because they allow people who do not meet the requirements for traditional financing options to get into reliable transportation.
How do rent-to-own car agreements work?
The customer is given a choice of several makes and models that they can choose from. The company will then drive the selected vehicle to the borrower’s home or workplace to test drive it to decide if this is really what they want. If so, they can sign a rental agreement and take it home.
The customer is then required to make weekly or monthly payments until the end of their contract, which usually lasts one year. In most cases, this means that they will pay at least three times what they would have if they had just bought the car from car dealers instead of renting it.
At the same time, though, customers may find themselves in situations where they know how much money is needed each week for them to be able to afford rent/mortgage and groceries, but not enough left over for a down payment on a new vehicle purchase.
For individuals who cannot buy without going into debt first (or having someone else help with financing), you are signing up for an auto lease agreement that can help them get into a new vehicle without needing to make any down payment.
How do you qualify for a rent-to-own agreement?
To qualify, you need to have a decent credit score, proof of residency, and income. If you are self-employed, please check with your dealer first before applying for the agreement.
Not every dealer will require money down, but some may charge a fee for processing your application and paperwork. This is sometimes referred to as an origination fee. Avoiding a credit check may seem nice if you seemingly have no finance options — but there may be options you can consider for a subprime auto loan.
Each lender that works with poor credit car financing can curate a loan package to meet your interest rate and monthly payment needs. Even better, you’ll have access to a more extensive selection of vehicles for sale.
How much does it cost?
The price varies depending on what type of vehicle you decide to rent or purchase. Also, how long do you want the rental period? The longer time frame means higher monthly payments but lower overall costs since no interest charge if paid within that timeframe.
Keep in mind that maintaining an active contract can take away from other financial responsibilities like savings accounts, retirement funds, etc. For example, if I pay $20/month by this date next year, my total payment will be $240. However, if I wait until the due date, my total amount will increase by 30% since it has been compounding interest for a year, and you add all of that back into the final payment.
Why would someone want to enter into a rental agreement with an auto dealer?
It allows the borrower to drive a new car, which they might not be able to afford otherwise. However, borrowers cannot purchase a used vehicle outright in many cases and must finance their purchases through traditional lenders such as banks or credit unions.
The drawback of this approach is that these loans usually have stricter lending requirements than those offered by a car dealership.
The goal of getting into an auto agreement with a dealership is you can use the car during your rental period and then trade-in for another one at the end of the contract term when all payments have been made on time. When you do this enough times, eventually, you will own your dream automobile without having paid as someone would who purchase from a traditional lender.
What are the benefits of renting vs. buying a new or used vehicle?
There are many reasons why some people choose to rent-to-own vehicles. Some of the benefits include:
- Avoiding the costs of a down payment.
- Rent to own is less expensive than buying a new or used vehicle, with monthly payments usually a lot lower.
- Allowing you time to improve your credit score by paying on time and taking advantage of any available options for renters who have bad credit.
The benefits of renting a car to own one are many, and it might be an excellent option for you. The following section will describe in greater detail how rent-to-own agreements work when users do not have perfect credit scores.
If the user has a poor credit history, renting a vehicle before buying can improve their score by paying on time.
If the user has good credit history: The benefits of renting before buying are many, and it might be an excellent option for you. Renting to own is less expensive than buying with monthly payments that are usually lower. Allowing you time to improve your score by paying on time and taking advantage of any available options for renters with bad credit.
Should I be aware of anything before entering into this type of agreement with an auto dealer?
This is one of the most common questions I receive. There are several things to be aware of, but understand that this type of agreement has many benefits compared to purchasing a vehicle without an option for you to buy it at the end of your agreed-upon term.
Understand that this type of agreement is not the same as leasing or renting a vehicle. A rent-to-own contract allows you to pay monthly payments toward the final purchase price for your new car during your term.
If you elect to buy the vehicle at the end of your term, all monthly payments will be credited toward that purchase price.
The agreement should include an option for you to return the vehicle if it is not what you expected or want it to be when payment has been completed. In this instance, there may also be a re-stocking fee.
Do not sign any agreements until you have read the entire document and understand what it entails. If anything concerns you or does not make sense, then ask questions before signing the agreement to ensure that all terms are acceptable for your situation.
In conclusion
It is essential to find a car that will fit your budget and lifestyle. There are many options out there, but you need to make sure they work for you. Rent-to-own car agreements are a viable option for people looking to buy cars without needing too much money upfront. The system has been around for years, but it is still an effective way of getting the vehicle you want at your own pace.
