Rent-to-Own a used car: Everything you need to know

Rent-to-own has become an increasingly popular option for South Africans looking to buy a used car, especially when traditional financing is out of reach. But what exactly does rent-to-own mean, and is it the right choice for you? Here’s an in-depth look at how rent-to-own works, its benefits and drawbacks, and whether it’s a viable option for your car-buying needs.

What is Rent-to-Own for used car buyers?

Rent-to-own is a vehicle financing option that allows you to drive a car while making monthly payments toward eventual ownership. Instead of taking out a traditional loan, where you buy the car upfront with borrowed funds, you “rent” the car with the goal of owning it after a set period. In this model, your monthly payments include both rent and a portion that goes toward the car’s purchase price.

Rent-to-own is especially appealing to buyers who may not qualify for conventional car loans due to poor credit or blacklisting, as it often doesn’t require the same credit checks as traditional financing.

How does Rent-to-Own work?

Rent-to-own programmes vary by dealership, but the process generally works as follows:

Choose a car: You select a car from a dealership or company offering rent-to-own options. Often, you’ll find a range of affordable used cars to choose from.
Sign the Rent-to-Own agreement: This contract details the monthly payments, the term length, and the car’s final purchase price. Rent-to-own agreements typically range from 36 to 60 months.
Make monthly payments: Each month, you’ll pay an agreed amount, which covers both the “rent” for using the car and an instalment toward eventual ownership.
End of term options: Once the term ends, you have the option to pay off the remaining balance and fully own the car. Some agreements may automatically transfer ownership after the final payment, while others require a final “balloon” payment.

Pros of Rent-to-Own for used car buyers

Rent-to-own offers several advantages, particularly if traditional financing is out of reach:

No credit checks: Since rent-to-own programmes don’t always rely on credit scores, they’re accessible to buyers with poor credit histories.
Affordable entry point: Many programmes require minimal upfront deposits, making it easier to get behind the wheel without significant savings.
Flexible ownership option: You don’t have to commit to full ownership immediately. If your financial situation improves, you may choose to buy the car outright before the term ends.
Improves budgeting: With set monthly payments, rent-to-own provides predictable budgeting, which can be helpful if you prefer a structured payment plan.

Cons of Rent-to-Own for used car buyers

While rent-to-own can be a great solution for some buyers, it also has its drawbacks:

Higher overall cost: Rent-to-own payments typically include higher interest, meaning you’ll likely pay more in the long run than if you had secured traditional financing.
No early equity: Until you’ve completed the payment term, you won’t fully own the car, and it may be repossessed if payments aren’t made on time.
Condition and mileage restrictions: Rent-to-own contracts may have limitations on vehicle wear and mileage, meaning you could incur penalties if the car isn’t kept in good condition.
Limited selection: Rent-to-own options are usually limited to specific models, so your choices may be narrower than in the broader used car market.

Why consider a Rent-to-Own financing programme for used car buying?

Rent-to-own can be a lifesaver if conventional loans aren’t an option. It provides a practical path to vehicle ownership for those with limited access to credit, especially if a car is essential for work or family commitments. If you have a steady income but struggle with credit issues, rent-to-own allows you to gradually work toward full ownership without needing a large upfront payment or a spotless credit history.

What are the implications of Rent-to-Own?

Before committing, it’s essential to understand the long-term implications of a rent-to-own arrangement:

Potential for repossession: Since you don’t own the car outright until all payments are completed, missing payments could lead to repossession.
No immediate resale option: Because you’re not the official owner until the end of the term, you won’t be able to sell the car if your circumstances change.
Higher monthly payments: Rent-to-own payments may be more expensive than traditional finance options due to included fees, so you’ll need to budget carefully.

Best practices for Rent-to-Own: What you should know

To make the most of a rent-to-own programme, consider these best practices:

Read the contract carefully: Make sure you fully understand the terms, including total costs, penalties, and what happens if you miss a payment.
Stick to mileage limits: Check if there’s a mileage cap in your agreement, as exceeding it can lead to extra charges or impact your ownership rights at the end of the term.
Maintain the car: Since the car technically isn’t yours until the contract is completed, keeping it in good condition is essential to avoid penalties or extra fees.
Save for a final payment: If your agreement includes a final “balloon” payment, set aside funds for it throughout your contract so you’re prepared at the end.
Shop around: Different dealerships offer different rent-to-own terms. Compare multiple options to find the most affordable and transparent contract available.

Who is Rent-to-Own best for as a used car buyer?

Rent-to-own is ideal for buyers who:

Have poor credit or are blacklisted and cannot access traditional financing.
Need a vehicle immediately but don’t have the funds for a large upfront payment.
Have a steady income and can manage fixed monthly payments.
Are looking for a straightforward, structured pathway to car ownership.

If you fall into one of these categories, rent to own can offer a viable solution to car ownership in a way that accommodates your financial limitations.

Final Thoughts: Should you Rent-to-Own a used car?

Rent-to-own isn’t for everyone, but it’s a solid option if conventional financing is out of reach. It provides an affordable way to drive a car while working toward full ownership, without the need for credit checks or a large deposit. However, it’s crucial to fully understand the terms, as rent-to-own contracts can be more costly in the long term.

For those who need a practical solution and have the income to keep up with monthly payments, rent to own can be a valuable stepping stone to car ownership. Just be sure to weigh the pros and cons, read the contract thoroughly, and choose a vehicle that fits your lifestyle and budget.

Read more of UsedCarReview’s buying advice and financing advice to help you make better-informed decisions.