A lease-to-own car is a vehicle that is offered to individuals under a specific agreement: You will pay for the vehicle as you would when renting a car, but instead of turning the vehicle in at the end of the term and losing the money you spent, a portion or all of the money paid for renting it will go toward its purchase.
Here’s an example of how it would work: You find a lease-to-own auto center or a dealership that offers a lease-to-own program and visit its lot. A car salesman will take you around and help you pick out the car you like. Once you choose the best one for you, you place a down payment and then make payments on the car, usually one payment per week or every two weeks.
Down payment requirements vary; although a credit check is not usually required, some lease-to-own car dealerships might use your credit score to determine your down payment and interest rate if you will be using some kind of dealer financing. Generally, the worse your credit is, the greater your down payment requirement and the higher your interest rate will be.
Advantages of Lease-to-own Cars
A lease-to-own car can be a great option for someone with bad credit who needs a car and doesn’t have the choice of borrowing one. Here are some of the advantages of lease-to-own cars:
There’s no credit check. Compared with a contract to buy or lease a car, lease-to-own car contracts are easy to get. In most cases, all you need is the application criteria — proof of identity, proof of residence, and proof of income — and enough money for a down payment. Having a policy that’s so light on requirements makes the lease-to-own option a highly viable one.
There’s no interest. Because you are not being loaned money for the car unless you use dealer financing, you do not have to pay interest. What you are paying each week is the rental fee and the money towards the purchase of the car.
There’s no effect on credit. If you are late on a payment, you will be penalized with a late fee, usually $25 — but your credit will not be affected. However, if you are using dealer financing, your credit might be affected.
With benefits like these, renting to own can be the critical solution to some situations.