When it’s time for a new set of wheels, many Australians are discovering the option of rent-to-own car agreements.
So, what is ‘rent-to-own’ when it comes to car ownership and what are some of the pros and cons?
What are rent-to-own cars?
Rent-to-own arrangements can be as simple as they sound; you rent a vehicle, make a weekly payment every week until you have paid it off under the relevant agreement, and then it can generally become yours!With a rent-to-own agreement, there is usually a set amount of time agreed on before the loan repayments commence, with the monthly repayments covering costs such as rental costs as well as the eventual purchase price of the car. If you do not make your repayments per the agreement, you may have to return the vehicle, depending on the terms of your contract.
At the end of the agreed-upon time period, the car may be signed over to you. In some cases, there may also be a lump sum to cover at the end of the contract. That sounds simple enough, but there are a few things that you should keep in mind.
It is important to remember that the terms of a rent-to-own car agreement may vary depending on your personal circumstances and between different lenders and relevant providers.
Some pros of rent-to-own car agreements
Some of the upsides to renting a car to own, include:Fewer credit issues
The rent-to-own car agreement provider may not run a credit check on you when you apply. This can sometimes make this service more accessible to those with a sub-par credit history. For this reason, those living in Australia on a temporary visa often find rent-to-own setups an accessible way to achieve car ownership.Better credit long term
One of the best ways to fix bad credit is to repay your rent-to-own car arrangement reliably. When you repay in a timely and consistent manner, this can help build your credit score. However, irregular repayments due to lack of affordability may harm your credit score.No interest
With a rent-to-own plan, you may not have to pay interest. This can be a huge drawcard for some rent-to-own car agreements and may also be a reason for their growing popularity.Simple and convenient
While you are in the rental period, your payments will often cover costs like insurance, registration and servicing, meaning there is one less task to worry about every month. The nature of the plan also means that the cost will likely be fixed and regular. Paying the weekly payment through direct debit can be a fantastic way to ensure that you stay on track with your repayments.Upgrade your car
If you need a more reliable car for work or to transport your family, a rent-to-own arrangement may give you the option to upgrade your vehicle. It’s important to always ensure, however, that you are not purchasing a vehicle where the operating costs are significantly more than what you can realistically afford. For example, purchasing a four-wheel-drive that requires much more expensive tires and more fuel may not be the most appropriate choice for you or your family — even if it’s available under a rent-to-own arrangement.Some cons of rent-to-own car agreements
There are, of course, some potential downsides to rent-to-own car contracts:
Rent-to-own cars generally have greater overall costs
Despite sometimes coming with no interest charges, the fees and other costs that are built into rent-to-own contracts can skyrocket the total cost of the agreement. You may have to pay the rental costs of the car, the car itself, and other fees, such as a setup fee and a lump sum deposit. This can become particularly expensive if you wish to terminate the agreement eventually.Also, when you take out ‘standard’ vehicle finance, you can purchase almost any vehicle within your price range. With rent-to-own, you may be limited to only being able to purchase newer vehicles which may be more expensive.
You don’t own the car
Even though the car stays with you during the rental period, you are not considered its legal owner. This means that you won’t be able to modify the vehicle in any way. You also can’t use it as collateral for any other secured loan until you have fully paid it off and it is legally yours.A weekly payment may not suit your budget or pay cycle
Most loan types come with monthly repayments or flexible repayment options. Contractual repayments on rent-to-own plans are generally payable weekly. This can be less convenient depending on your pay cycle and can sometimes contribute to a higher overall cost.Can I get rent-to-own car finance if I have a bad credit history?
If you have bad credit history and need a car for personal use, alternative vehicle finance options are available. Rent-to-own cars may seem like an easy way to sometimes avoid credit checks, but you may end up in a long-term contract that you need help understanding or can’t realistically afford. This may further impact your credit history if you can’t make each weekly payment on time.
Apply for a Vehicle FinanceWhere can I get a Bad Credit Car Loan?
A way to avoid unnecessary confusion and expenses is to consider applying with a non-bank lender specialising in bad credit finance. Many applicants with a poor credit rating, who have defaults on their credit file or are discharged bankrupt find it challenging to access finance, as many lenders rely on their credit history, rather than their current financial position.Finance One can offer vehicle finance for those with a bad credit history or no credit history, for both new and used cars.
Contact our team to find out more about bad credit vehicle finance and how we can work with you, instead of against you, to get the car you want and need.
Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.
