Tap to Read ➤

What are Rent-to-Own Cars?

Ashwini Kulkarni Sule
A rent to own car scheme works well for those who cannot get finance due to damaged credit scores. Look at the features of this scheme here.
The credit score is an important financial indicator of an individual and greatly impacts his or her ability to borrow funds. Minor hitches like delayed payments, skipped installments to more serious ones like bankruptcy, repossession, etc. can play havoc with our credit scores. Bringing these ratings within an acceptable range is a herculean task.
Similarly, gaining financial assistance for buying expensive assets becomes very difficult. There are millions of people who can do with a little help in improving their financial situation. Obviously, loan from banks or other financial institutions is not an option. Schemes such as 'rent to own car' can be a last resort in the given circumstances.


In this scheme, you get to use the car for the period for which you pay its rent. After the said period is over and you are done with all the rental payments, you get to keep the vehicle as your own.
There are several advantages of this scheme for the two parties involved. The seller often charges a higher interest rate than any other conventional car loan. As a result, he ends up drawing far more money than the car's worth. In case, the buyer falls short on his payment, the seller can repossess the car and engage it in a similar scheme to another buyer.
As far as the buyer is concerned, this scheme still works for him, because of the relaxed credit requirements. Besides, although the interest rate is higher, the monthly installment is far too less, to experience any real financial pinch. In short, this scheme turns out to be a win-win situation for both parties.


The requirements for such a deal are pretty much relaxed. Often, there will be no credit or background check by the seller before financing. The only documents that you will have to produce while signing a contract are a proof of identity such as a driver's license or a social security card, proof of residence, and a proof of income.
If you get paid in cash, you might have to produce a letter from your employer or a bank statement. A small down payment is to be paid before you start with your monthly installments.
The interest rate and the period of payment are not negotiable, however, you can still bargain with the seller. A lower monthly payment results in gross overpayment in the long run. Thus, a USD 500 car may end up costing you as much as USD 1,500!

A Word of Caution

This sure looks like a very attractive scheme at first glance. It can be a boon for many people. However, all the potential car buyers should undertake a thorough research regarding the various schemes available in the market.
There has been a high incidence of the title deed not being transferred to the buyer, just because he fell behind on his payments by a single day! Such outrageous malpractices are rampant in this field. Hence, execute a fair amount of caution and only then sign a contract.
Oftentimes, you will realize that you are far better off buying a cheaper car on a down payment and using it for a year or two. Meanwhile, you can save enough on interest to buy a bigger car, without resorting to any of these schemes. This way, you can alleviate all the possible complications that might arise.
Disclaimer: The information given here is for reference purposes only and does not directly recommend any specific financial course of action.