Is it a good idea to rent a car?

If you need a car but don’t have the money or good credit to buy one, your options are limited. You can borrow a car from a family member or friend, buy a car from a “buy here, pay here” dealership, or lease a car with an option to buy. But is this last option – rent to own a car – really a good idea?

How does rent-to-own work?

A used car dealership | Dmitry Rogulin TASS via Getty Images

RELATED: What Credit Score Is Needed to Qualify for a New Car Lease?

Rent to own a car works exactly as it should; you rent a car and part of the payment is used to buy the car at the end of the rental period. According to credit karmaHowever, the appeal of lease-to-own programs is that dealerships typically work with buyers who have no credit or have bad credit because they don’t typically run credit checks. Instead, buyers must provide proof of income and proof of residency in addition to a number of personal references.

Lease-to-own buyers also pay the dealership directly on a weekly, bi-weekly, or monthly basis, as opposed to a third-party lender. Additionally, the inventory selection of some lots may not be as extensive as that of traditional car dealership lots.

Car rental programs have certain advantages

Cars are idle in the Hertz Rent-A-Car rental lot.

Cars are idle in the Hertz Rent-A-Car rental lot. | Justin Sullivan/Getty Images

Although renting to own a car may not seem as satisfying as buying one, the option has a few advantages:

  • You own the car at the end of the rental period: After making all lease payments, you will own the car at the end. It’s even an advantage over leasing in which you have to pay the residual value of the car at the end of the lease term to own it.
  • No credit check: As stated earlier, lease-to-own dealerships do not check your credit score or background.

There are also disadvantages with a rent-to-own program

Tourists load their luggage into their rental car.

Tourists load their luggage into their rental car. | PASCAL POCHARD-CASABIANCA/AFP via Getty Images

Obviously, a rent-to-own program is ideal for a wide variety of buyers in a difficult credit situation, but it also has some disadvantages:

  • You will have to pay more frequently: Although the terms of some lease-to-own programs may differ, many require you to pay the dealership weekly or bi-weekly, not monthly. This can become demanding depending on your current compensation schedule.
  • Older cars without warranty: Most cars in lease-to-own programs are older and have higher mileage. That means they’re usually also out of warranty, so you’ll have to pay out of pocket for any repairs during the time you have them.
  • High interest rates: Rent-to-own cars usually come with high interest rates.
  • Not good for building credit: While leasing or financing a car can boost your credit, leasing to own a car does not because the payments are not reported to the credit bureaus.

Is renting to own a car a good idea?

Not really. While a rent-to-own program can help anyone with poor or no credit in times of need, it’s not the best financial decision. As you can see, the cons outweigh the pros, and it’s possible that a rent-to-own car could end up being more of a financial drain than a trusty set of wheels.

On the contrary, a lease-to-own car should be a last resort for finding risky financing, securing a co-signer, or buying a cheap car from an individual. All of these options can lead to a better financial and credit situation in the end. Unlike a lease-to-own program, which could lead to more headaches if the car breaks down or more financial stress.

RELATED: The Best Ways to Buy a Car When You Have Bad Credit

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