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Rent-to-own cars: some pros and cons

Oct 12, 2021 | Insights

What is a rent-to-own car deal, and does it make sense for your budget and travel requirements? Find out how it all works.


When it’s time for a new set of wheels, many Australians are discovering the option of rent-to-own car agreements.

An already popular way to access new and slightly used vehicles in the US, the practice is now gaining a foothold Down Under. So, what is ‘rent-to-own’ when it comes to cars and what are some of the pros and cons?

What is rent-to-own?

Basically, rent-to-own can be as simple as it sounds; you rent a vehicle until you have paid it off in accordance with the relevant agreement, and it can generally then become yours.

With a rent-to-own agreement, there is usually a set amount of time agreed on before the full loan repayments commence, with the monthly repayments covering costs such as rental costs as well as the eventual purchase cost of the car.

If you do not make your repayments in accordance with the agreement, you may have to return the vehicle, depending on the terms of your agreement.

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 amount to pay at the end of the contract.

That may sound simple enough but there are a few things that you may want to 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. That is why it is a good idea to read and seek independent professional advice where required on any proposed contract that you wish to enter into.

Some pros of rent-to-own car agreements

First things first, you shouldn’t enter into any loan type arrangement unless you have read and understood the proposed agreement and all of the terms and conditions, and you are confident and have the ability to meet all of the repayment requirements under the agreement. You may wish to seek independent financial advice before entering into any new financial commitments, and you may wish to seek independent legal advice before entering into any new agreements.

Once you have confirmed you can handle and can meet all of the repayment requirements, and any other requirements (and depending on the company with whom you wish to enter into a rent-to-own car agreement with), these may be some of the benefits of entering into a rent-to-own car agreement:

  • Fewer credit issues: The rent-to-own car agreement providers may not run any credit checks This can sometimes make this service more accessible to those with a sub-par credit history. But beware and find out whether you are financially stable and can afford the weekly payments, and any other payments, for the length of the contract you have agreed on.
  • Better credit long term: One of the best ways to fix bad credit can be to faithfully repay your rent-to-own car arrangement. 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 have a negative impact on 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 and registration, 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, and a direct deposit will hopefully keep you up to date with no fuss.
  • Get a better car: If you need a more reliable car for work or to transport your family, a rent-to-own arrangement may give you more choice in the type of car you drive.

Some cons of rent-to-own car agreements

Once you have read and understood all of the terms and conditions of the proposed agreement, and depending on the company with whom you wish to enter into a rent-to-own car agreement with, these may be some of the issues you may want to be aware of before entering into a rent-to-own car agreement:

  • Greater overall cost: Speaking of costs, despite sometimes the lack of interest expenses, rent-to-own plans may still require more money than some car loans. You may have to pay for the rental costs of the car, as well as the car itself, and there can also be other fees and lump sum deposits required in addition to these costs. This can become particularly expensive if you wish to eventually terminate the agreement. Also, when you take out a ‘standard’ car loan, you can usually have the option to purchase almost any vehicle. With rent-to-own, you may be mostly limited to newer, more expensive models.
  • You don’t own the car: During the rental period, even though the car stays with you, you are not considered its legal owner. This means that you most likely won’t be able to alter or “supe up” the car in any way and you won’t be able to use it as collateral for any other secured loans until you have fully paid it off and it is legally yours. This means you can’t put the car down as your asset if you do intend to take out another loan.
  • Frequent repayments: Most loans will have monthly repayments, or flexible payment arrangements, but contractual repayments on rent-to-own plans are generally payable weekly. This can be less convenient depending on your pay cycle and can also sometimes contribute to a greater overall cost.

You may still be wondering how a rent-to-own car agreement differs from a lease-to-own vehicle arrangement. In practice, they can be very similar but there are a few key differences that may sway your decision. Firstly, when you rent-to-own with some companies depending on the agreement, generally the car is destined to be yours. Depending on the terms of the lease, with a leased vehicle you can usually choose whether to keep the car or give it back and lease a newer model at the end of the lease term. This means that you should be certain that you will want to keep the car at the end of the agreement if you choose to rent-to-own. This is also the reason that leasing is common for business vehicles, while rent-to-own tends to be exclusively for private use.

Remember to always read the terms of the agreement before entering into anything, and seek independent professional advise where it is recommended.

If you have a bad credit history and are in need of a car for your personal use, there are alternative options out there. 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 don’t understand or can’t afford. This may further impact your credit history.

A way to avoid this is to consider applying for a car loan for bad credit with a non-bank lender, such as Finance One. Finance One can offer car loans for those with a bad credit history, for new and used cars. With car loans, you own your car and more importantly, we can help you receive the right and affordable finance solution for you, to get you back on the road.


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 legal, financial, taxation or other advice 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. We do not accept responsibility for any loss arising from the use of, or reliance on, the information or any variations to the information as offered at different times by different lenders and/or relevant product providers.

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Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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