If you’re in a pinch and you need a car now but your credit is poor, a lease to own vehicle could be a quick solution. However, it may not be the answer to repairing your bad credit.
What Is a Lease to Own Car?
A lease to own car, sometimes called rent to own, isn’t like your traditional auto loan; there are some big differences.
First, lease to own vehicles are available at dealerships that offer in-house financing. This means that the dealer is also your lender, so all lending and car shopping is done in one place.
Secondly, lease to owns are different when it comes to the vehicle’s title. When you finance a car with a traditional auto loan, your name and the lienholder’s (your lender) information are on the title together. With a lease to own, the dealership doesn’t add your name to the title until your last payment. This is because you must make all the payments to officially own the vehicle.
If you successfully make all the payments, your name is then listed on the title and you have official ownership rights. That is, after you pay for the title and licensing fees. While you technically don’t own the car until you finish the payments, you're still responsible for maintaining it, and paying for auto insurance.
Pros and Cons of Lease to Own Agreements
There are some advantages to lease to own vehicles, but also a decent number of downsides to consider before signing that dotted line.
- No credit check – In-house financing dealers are well known for not checking their customer’s credit reports. They don’t need to rely on third-party lenders, since they are the lender. They’re more worried about your ability to pay for the lease.
- Quick process – The process of getting into a lease to own agreement is quick, due to the fact that the dealership is your lender. Most customers can get in and out in one day, since you don’t have to apply with a lender off-site, wait for an approval, and then visit the dealer.
- Walk away option – When you sign a lease to own contract, you agree to make all the weekly, biweekly, or monthly car payments until you’ve paid off what you owe. However, you may be able to simply walk away from the vehicle if you find you can no longer afford the payments – remember, your name isn’t listed on the title until the last payment. This could depend on the language in your agreement, so read it carefully.
- No interest charges – Since you’re not financing the car, you won’t be paying interest charges. All fees and vehicle payments are predetermined ahead of time.
- Lease may not be reported – In-house financing dealerships may not check your credit, but this also means they may not report your on-time payments to the credit bureaus. If you have a lower credit score, a lease to own agreement may not improve it.
- Reporting late and missed payments – While the dealer may not report your timely payments, they’re going to report late or missed payments. This means your credit score may take some hits if you slip up.
- Used cars only – While it may not be a drawback to you, in-house financing dealerships only sell used vehicles.
- Payment schedule and late fees – Some in-house financing dealers require that you make weekly or biweekly lease to own payments, instead of monthly; and you may have to do it in person. Additionally, these dealerships are also known for charging late fees.
Some of these cons may not concern you, such as the lease to own car possibly not being reported to the credit bureaus. If you’re not worried about credit repair, and you need a vehicle now, a rent to own agreement may be for you. However, if you’re only considering a rent to own agreement because of your low credit score, you should know that a subprime auto loan may be an option for you, too.
Considering Another Bad Credit Car Option
For borrowers with less than perfect credit scores, there’s subprime lending. Subprime lenders are signed up with dealers that have a special finance department – essentially, they have the resources to work with unique credit situations.
With a subprime car loan, you first submit your information to the dealership, who then sends it to one or more subprime lenders. If you qualify for financing, a subprime lender verifies your info, and then makes a payment call to let the dealer know the maximum monthly payment that you qualify for. From there, you work with the dealership to choose a vehicle that you qualify for that fits your needs.
Unlike a lease to own agreement, subprime auto loans are reported to the credit bureaus, so it’s a chance for credit repair. You also get your name on the title of the car, since you’re financing it, which means you can’t walk away from a subprime auto loan like a lease to own agreement. However, you do have a chance to repair your credit with on-time payments.
Where to Find Bad Credit Car Options
Whichever lending or leasing to own option you choose, finding a dealer to work with your credit situation can be a hassle. Why not start with us instead of driving all over town?
Here at The Car Connection, we’ve got a coast-to-coast network of dealerships that work with bad credit lenders. To get matched to a dealer in your area, just fill our out free car loan request form.