Rent To Own Financing – Is It For You?

by Don Elliott on October 6, 2011

Buying a good new or used car is a difficult process. The various types of car financing are part of what makes the process so difficult. For example, leasing, lease to own, used car leasing, rent to own, and long term rental might appear to be similar. However, the differences might surprise even the most savvy car buyer.

Car rental and leasing both offer a vehicle for a specified period of time for a specific payment. At the end of the period of time, the car is returned to the renter or lessor with no expectation of ownership. Both new and used cars can be leased, although most leases are for new cars.

Rent to own and lease to own are interchangeable terms. Both car financing options are more similar to buy here pay here financing than they are to renting or leasing. Both rent to own and lease to own are car financing options for people with bad credit.

How does it work and is it for you? First, let me be clear when I say that rent to own financing is probably for car buyers without other options because of bad credit. Buy here pay here dealers finance people with bad credit, but car buyers take title with a lien when they purchase the car. In rent to own financing, the car dealer holds the car title until the buyer using rent to own vehicle financing makes all of the payments.

To qualify for rent to own financing, car buyers need the following:

  • To be at least 18 years old (or more in some states and at some dealers)
  • Identification that includes a valid driver’s license and a social security card
  • Proof of residence, which could include utility bills, rental agreements, or even junk mail with your name and address on the envelope
  • Some kind of down payment

Rent to own buyers should expect to make weekly “rental” payments. Miss a payment and lose the car. Rent to own financing does not require a credit check. However, it also won’t improve your credit if you make all the payments. Usually you can take the car back at any time during the agreement. However, there are lots of conditions in returning the car and you lose all the car’s equity.

Bottom line! Rent to own financing is an expensive alternative to other car financing options. If it is your only option, be sure to read and understand your rent to own agreement. Dealers who offer this type of car financing have been known to take advantage of car buyers who don’t have other car financing options.

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