For people who can’t qualify for a conventional auto loan or leasing, rent-to-own may be an option. This financing plan allows a person to rent a car with a portion of the payment going toward the purchase of the vehicle. 

The main benefits of a rent-to-own program for buying a car are no credit checks along with the opportunity to own the vehicle at the end of the rental term.  However, several drawbacks of this car-buying option usually include:

• a higher total cost for the vehicle than for other used cars because of mark-ups for paying over time
• requirement of a down payment
• no warranty on the vehicle
• more frequent payments, usually weekly or bi-weekly instead of monthly; this increases the chance of a late payment
• may be charged a fee for late payments
• ownership does not occur until payments are completed

Also beware of an early termination fee, which may be in the rent-to-own contract. If the car needs many repairs before the completion of payments, you might decide to end the rental. This action might result in loss of your down payment and other charges. 

Another option for a person with a poor credit history is a subprime loan; however, this would have a higher rate and result in paying several thousand dollars more in interest over the loan term. Instead of a rent-to-own car deal, become a credit union member, which may allow you to obtain an auto loan at a more favorable interest rate.  

For additional information on rent-to-own car programs, click here.

Teaching Suggestions

• Have students talk to others to learn about actions they took to finance the purchase of a car.
• Have students research current rates for financing a car purchase.

Discussion Questions 

1. Why might a person avoid using a rent-to-own car buying option?
2. Describe actions for avoiding a rent-to-own car buying option.