Rent-to-own car: how is the process
If your credit is not good, but you need a car, you have one of three options: borrow a car from a friend or family, buy a car with a sub-car loan, or rent it to yourself.
It is okay to rely on family or friends until it is not. If you insist on using a subprime loan, you will pay a higher interest rate than someone who has a good or good credit. In fact, in the fourth quarter of 2018, the average interest rate on secondary auto loans is 12.17%, which may be higher, depending on your credit score. In contrast, a well-credited borrower can get a loan of 5% or lower.
This leaves a choice: rent to yourself, considering the high interest rates, this may be a better choice. However, you need to consider all aspects of the transaction to determine if it is a better choice for you.
Good credit and bad credit
Interest rates on car loans are still affordable, but usually only for those with good credit. You will definitely see huge incentives from dealers trying to get you through their doors and enter a new journey in the driver's seat. Some dealers offer interest rates as low as 1.9%, while others attract consumers at rates as high as 0%, provided you fund them. This is good, but again, only you have a good reputation. Most people with good credit scores still get a good score. As noted above, interest rates are below the 5% threshold by other traders and other lenders. But what if your previous payment is a bit lax and leads to low scores? You can still fund your purchase, but it will cost you.
First, let's compare the terms of a $10,000 car loan when you have good credit and when your credit is bad. For a well-trusted person, the monthly loan for a three-year, $10,000 car loan is $300 and the interest rate is 5%. For subprime borrowers, the same loan is $333 per month and the interest rate is 12.17%.
How rent-to-own car works
There is a benefit to renting your own car, which is easier to get. The car rental market allows people to get a car without a credit card. If your credit is not good, it will make it easier for you to qualify for the purchase, even for subprime loans. You only need to show proof of identity, residence and income.
Payments are paid on a weekly rather than monthly basis, depending on the basic price of the car, usually between $75 and $100 a week. You may also need to pay a deposit for your car. There is no interest cost to accumulate, but there is usually a late fee of $25. Generally, you pay directly to a car dealer, but if you buy from a large chain, payments can be managed using a nationwide bill payment service. It's a bit like renting a car, but at the end of the rental period, a portion of the payment is for purchase.
Car dealers offering self-rental options often cater to the subprime market and launch high-traffic, mechanically-performing cars that might otherwise be sold at auctions for between $5,000 and $6,000. They sold the cars at a fare increase of at least 100% of the auction price and used the fare increase as the basis for the rent. So, if a dealer who rents it to you gives you a price of $10,000, they are likely to buy the car for $5,000 at the auction.
You will be asked to pay the down payment and weekly payment, which add up to a price of $10,000. Although the dealer will not charge you interest, he will make a profit by increasing the price by 100% of the original price, plus any rent he increased during the rental period.
