A poor credit score can become a lingering nightmare and affect numerous aspects of your life. If you are credit-challenged and wish to purchase a car, getting an auto loan approval may seem like a tedious task. However, rent-to-own cars have gained significant popularity amongst those with a bad credit score. Typically, a rent-to-own car means renting and using the car from a dealership whilst paying a down payment and making weekly payments. Once you have completed the weekly payments of the car, the ownership of the rent-to-own car shifts to you, the buyer. As the dealer requires no significant credit check for the purchase of the car, many credit-challenged individuals turn to rent-to-own cars. Although they may seem like a lucrative option, the disadvantages outweigh the benefits.
What are the Downsides of a Rent-to-Own Car?
1) Expensive Purchase
When the dealer lines up used cars under rent-to-own category, he marks them higher than other cars. As no interest rates are charged on rent-to-own cars, he tries to make a profit through sale of the car. Therefore, purchasing a rent-to-own car means paying more to own a used car with a lower resale value.
2) Frequent Payment Schedule
The payment schedule associated with a rent-to-own car is more frequent as compared to a used car. The dealer requires you to make weekly payments as against the regular monthly payments on a used car. Due to frequent payments, it can become difficult to keep tracks of payments, thereby, attracting the possibility of a late payment fee.
3) No Effect on Credit Score
Regardless of your timely payments, your credit score will not improve due to a rent-to-own car. With the purchase of a regular used car, the ability to increase your credit score is a possibility. However, with the purchase of a rent-to-own car, the payments do not reflect on your credit report and will not help in improving your credit score.
4) Absence of Warranties
There are no warranties on rent-to-own cars. As you use the cars, the probability of a breakdown is higher than a regular used car. Therefore, any repairs, damages and breakdowns are your responsibility as a buyer of a rent-to-own car.
Is there an Alternative Option?
If you do not wish to buy a rent-to-own car, you can still avail a bad credit auto loan to purchase a regular used car. The advantage with purchasing a regular used car is that monthly payments can help you structure your finances and warranties can shield your car from any potential future damages. Thus, purchasing a used car can provide greater benefits in the long run.
A damaged credit score does not necessarily mean that you should opt for a rent-to-own car. The downsides of purchasing the car include expensive purchases, frequent payment schedules, little or no effect on your credit score and absence of warranties. The good news is that purchasing a regular used car with a bad credit auto loan is a suitable alternative.