Consider pitfalls before you rent-to-own

Every citizen would like to own a car, but buying a vehicle doesn’t come cheap and you need to think carefully before making the leap to ownership.

While there are the traditional finance options available, someone with a low credit score, who is blacklisted or under debt review is unlikely to obtain credit.

That is when rent-to-own vehicle financing comes into play.

This means putting down a deposit and making payments on a weekly or monthly basis. The company renting the car to you is responsible for the maintenance and running costs for the selected period of 12, 24, 36, 48 or 60 months.

While this may look like a good deal, there are both pros and cons to consider.

According to Hippo.co.za, qualifying for a rent-to-own financing scheme requires an ID, proof of residence and a payslip to prove to the service provider that you’ll be able to afford the rental payments.

A good credit history is not considered in your application, which makes qualifying for a car much easier compared to traditional car financing methods.

You can rent a car for a short period of time without having to financially commit to the full purchase.

Many rent-to-own deals are week-to-week or month-to-month, so if you can no longer afford the payments, you can return the car to the provider and simply stop paying.

End-of-term fees must be considered.

If you paid all your monthly payments on time for the entire term, you will be given the opportunity to buy the car.

However, some companies may require a final fee to be paid before you take ownership.

Many rent-to-own vehicle providers charge a high interest rate, much higher than traditional car financing which may make payments so expensive it may be impossible to keep up.

High rental prices could also mean consumers end up paying twice what they would have on the auction price of a vehicle.

The car could also be repossessed if you can no longer afford the payments.

Many rent-to-own companies repossess the car immediately if a consumer cannot pay – sometimes within a week of non-payment.

The National Debt Advisors website warns that if a bank and other credit providers decline to finance you, it’s best to think about the reasons why.

Do you have a bad credit record? Are you blacklisted? Did the affordability assessments show you are unable to afford vehicle finance?

If so, consider the underlying problem. If you have trouble committing to long-term payments, perhaps this is not the best option for you.

About 50% of people who rent-to-own have their vehicles repossessed because of late payments.

When this happens or if you terminate your contract prematurely, you lose all the money you have paid and your deposit.

Make sure to examine the lease agreements’ terms on mileage. Many rent to buy car agreements gives you a capped amount of mileage per month. If you exceed that you will be charged per kilometre once your contract expires.

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