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Know the risk of renting a vehicle before deciding to get behind the wheel.
A car purchase influences the way we live. Having the capacity to get from point A to B in a timely manner is critical, especially for those with demanding family or work commitments. However, a bad credit rating can make securing vehicle finance a tough task.
This is where rent-to-own vehicles come into the picture. It provides an alternative to securing a vehicle without the need of a loan. The application stage is easier with fewer checks, making it viable for those with severe credit impairments.
Regardless of this, you should know the risk of renting a vehicle before deciding to get behind the wheel.
What Is A Rent-to-own Car?
A rent-to-own car allows you to take possession of a vehicle for an agreed rental period. At the end of the rental period you can purchase the rented vehicle and call it your own. The regular payments scheduled include rental costs and costs associated with eventually purchasing the vehicle. Upon final payment (or lump sum payment), the vehicle is officially yours. In addition, all rent-to-own arrangements require a down payment.
Such regular repayments are analogous to vehicle finance. However, rent-to-own payments will always be higher than regular vehicle finance, even compared to sub-prime finance. This ultimately leads to costing more in the long-run which we will touch upon in this article.
So Why Do People Do It?
A significant benefit of a rent-to-own arrangement lies in the application stage. Rent-to-own applications leave your credit rating untouched. In fact, a rent-to-own provider doesn’t look into your credit history at all! This makes it possible to obtain approval even with severe credit impairments.
On the other hand, vehicle finance factors in your credit file. This is not to say that rent-to-own doesn’t have their own set of eligibility criteria that are similar to vehicle finance. Your employment history, level of income, and bank statement conduct is still assessed in accordance to the provider’s liking.
Another positive is that rental payments do include vehicle registration and insurance costs. However, this does not factor in ongoing maintenance costs whereby the overall rental cost alone is generally higher than a finance arrangement in the long-run.
The possible risks associated with rent-to-own vehicles include:
You don’t own the vehicle during the rental period
As its name suggests, you don’t own the vehicle as you are effectively renting it. Ownership instead remains with the provider during the rental period.
This means there are strict rules with what you can and can’t do with the vehicle under your possession in the middle of said agreement. For example, you will be unable to make alternations or modifications to the vehicle. Usage of the vehicle is also limited such as offering ride-sharing services. It is important to consider whether rent-to-own arrangements are suitable at all, based on your future plans with any vehicle you plan to drive.
Additional Deposit(s) and Fees
Down payment is mandatory to commence rental with an end payment sometimes requested before gaining vehicle ownership. This is easy to forget over an extended period of time and can be an issue if you are short on funds at the end of the rental term. In addition, this also means a rent-to-own arrangement is not viable for those without the required down payment.
Whilst it is always important to look at the fine print, this is especially the case with rent-to-own arrangements. It is common for additional fees and charges to be included such as late payment fees, early termination charges, and even direct debit fees. This is all in addition to your monthly rental payments which is traditionally more expensive by itself.
Limited Protection Available
Rent-to-own contracts typically do not include warranty as a means to account for unexpected mechanical faults or issues. If not purchased outside of your contract and the car breaks down during the rental payment, you are likely to not have protection to cover the damages. This means having to fork out additional monies to fund repairs, whether you have the available funds or not.
A mechanical inspection is required if returning a vehicle. If the vehicle is not in satisfactory condition, you are financially responsible to rectify any outstanding issues.
With vehicle finance, mechanical warranty is generally an option. This may form part of your finance repayments, or in some instances part of the vehicle dealer package. This ensures you will not be out of pocket in case of any unexpected mechanical anomalies.
It is more expensive in the long-run
As mentioned already, a rental arrangement is generally more expensive. Partnered with any additional fees stipulated in the arrangement, this can quickly spiral out of control, costing much more than a typical car loan. Rent-to-own arrangement are exempt from disclosing exact interest charges, which differs to consumer vehicle finance where it is mandatory to clearly disclose all fees and interest charges.
This makes it difficult to make apple to apple comparisons with vehicle finance, especially with interest rates not mentioned. Despite legislation being in place to ensure rent-to-own providers comply with NCCP regulations, some rent-to-own providers have been found to contravene such regulations and have come into hot water with ASIC. This can leave vulnerable customers signing up to onerous terms whereby the true cost of their arrangement is not transparent.
In a Nutshell
This article is not to say rent-to-own vehicles are a firm no-no, but rather to make clear its weaknesses. A rent-to-own may be suitable dependent on your individual circumstances. However, it is essential to be aware of its pitfalls to ensure you secure a vehicle with the right payment options. The additional costs and risks may not cross your mind in the moment that you are browsing for a new car.
In short, a rent-to-own arrangement may be suitable if unsuccessful with vehicle finance. However, vehicle finance should always be your first option in mind prior to haphazardly jumping into a rent-to-own arrangement.
