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  • Nicholas Hinrichsen

How does a Lease or Rent to Own with a Car Work? Should I do it?

The terms renting and leasing are generally used interchangeably or alongside each other, giving way to confusion around the differences between the two car buying programs: lease-to-own and rent-to-own. This article will help you to understand the key distinctions and outline how they both work.


We will address the following questions:

  • What is a lease-to-own program?

  • What is a rent-to-own program?

  • When is it a good idea for me to use a lease/rent-to-own program?

  • What kind of credit score do I need to participate in these programs?

  • What’s the difference between leasing and leasing-to-own?

  • Where can I find a lease/rent-to-own program?

What is a lease or rent to own car program?


Lease-to-own and rent-to-own programs are both car buying methods that are alternatives to buying a vehicle out-right or financing through an auto loan. Although they are similar services that both result in owning a car, they have very different meanings when it comes to auto financing.


Lease-to-own

Typically, leasing is only offered at franchised dealerships and is exclusive to new vehicles. A traditional car loan payment is calculated based on the vehicle sale price, the interest rate, and the number of months it will take to repay the loan.


Lease payments are dependent on the following factors:

  • Credit check

  • A high credit rating can lower your monthly payment and vice versa

  • Sale price

  • Can be negotiated with the dealer

  • Length of the lease contract

  • The number of months you agree to lease the vehicle

  • Expected mileage

  • Leases set a maximum number of miles you can drive each year, with most being a cap of 10,000 miles. A higher limit can be implemented for an increased monthly payment. If the mileage limit is exceeded, at the end of the lease, payment will be made by the lessee to cover every extra mile

  • Residual value

  • The car’s value at the end of the lease, with depreciation included, and the amount you will pay to purchase the car

  • Rent charge

  • The equivalent of an interest charge

  • Taxes and fees

  • Vary depending on location

It is important to note that some dealerships will require a down payment for the lease. The greater the down payment, the lower the monthly lease payment will be.

Rent-to-own

Rent-to-own programs are often offered at BHPH (buy here, pay here) dealers. These dealers only sell used vehicles and are usually also the financial lender. This option allows for a car buying experience that is even easier than financing or leasing. A rent-to-own agreement is ideal for buyers who meet the following criteria:

  • Bad credit or no credit history as there are no credit checks required and no interest

  • Have proof of identification, residence, and income

  • Can make payments for the duration of the rental term, typically 12 to 36 months but can vary

Dealers will usually require a downpayment, and the payments are determined by the rate at which the car would be rented. These rates can range from $75 to $100 per week but ultimately depend on the car’s base price. Payments are divided between the rental fee and the vehicle’s purchase price, so it is important to know upfront the payment distribution and whether you will owe additional money at the end of the rental term. In the long run, renting-to-own can be more expensive than leasing or financing since there are no added interest costs or required credit checks.


What’s the difference between a rent-to-own and lease-to-own car program?


Simply put, a lease is an agreement between two parties, the lessor and the lessee, that calls for the lessee (user) to pay the lessor (owner) for the use of an asset (in this case, a car). Additionally, the lessee agrees to abide by various conditions regarding the use of the property. With a lease-to-own program, you are borrowing a vehicle from the dealer for a certain length of time, typically 36 or 48 months, though it can vary. Once the lease period ends, you can return the vehicle to the dealer or purchase it for a predetermined price, defined in the lease agreement.

Rent-to-own programs are similar in that they allow buyers to borrow a car from a dealer under pre-established conditions regarding the use of the vehicle. These programs come with a higher payment frequency, so rather than a monthly payment, buyers will usually have weekly or bi-weekly payment. Unlike leasing a car where you have a couple of options at the end of the leasing period, rent-to-own programs are used with the intent of owning the vehicle at the end of the agreed renting period.


When further comparing the two programs, there are advantages that a lease-to-own program can offer over a rent-to-own program. After calculating the total payments, you may end up paying more for a rent-to-own car since they are marketed towards buyers who have little to no credit or a bad credit score, and dealers take advantage of that to ensure they get paid. A lease also provides buyers the option to drive new cars with little upkeep and worry-free maintenance for the term of the lease (does not apply if the vehicle is purchased at the end of the lease period). The table below shows other differences between rent-to-own cars and lease-to-own cars.



What’s the difference between a lease to own car program and just leasing the car?

Leasing a car makes having a car more affordable than financing a car with an auto loan, and is an excellent service for those who want to drive a new vehicle every few years. The monthly payment for a traditional lease is calculated by subtracting the car’s value at the end of the lease term (residual value) from the negotiated selling price and dividing that over the number of months in the lease period. This formula guarantees the lessee only pays for the portion of the car that is utilized while it’s under the lease contract. As previously stated, when leasing a vehicle the lessee has two options to choose between when the leasing period is up.


The driver can decide whether they want to:

  1. Purchase the vehicle at the predetermined price agreed upon in the lease contract, OR

  2. Return the vehicle to the dealer

On the other hand, with a lease-to-own car, the buyer intends to purchase the vehicle once the lease expires. Up until the end of the lease contract, the monthly lease payments are the same for both scenarios. The key difference between the two is what happens to the car at the end of the lease contract. Since you don’t gain any equity or ownership rights when leasing, if the driver decides to return the vehicle, they simply pay any applicable fees, turn it in, and walk away. If the buyer decides they want to keep the vehicle to have ownership rights, they must pay the agreed-upon purchase price originally stated in the lease contract.

Is it a good idea for me to lease-to-own or rent-to-own?


When deciding between a lease-to-own program or a rent-to-own program, there are some considerations to be factored into the decision making process.

Lease-to-own

Leasing is a good option for drivers who:

  • Want lower monthly payments

  • Want a luxury car they would not be able to otherwise afford

  • Want free car maintenance (for the length of the lease term) and better warranty protection

  • Aren’t high mileage users

  • Aren’t 100% sure about purchasing a vehicle

Generally, monthly costs for a leased vehicle are drastically lower than they would be for a car loan. This is a result of lease payments being based on the vehicle’s depreciating value rather than the vehicle’s full value. Lower payments allow drivers to lease luxury vehicles they usually could not afford to purchase. During the term of the lease, the driver can use the car (up to the maximum allowable annual mileage) without worrying about the cost of maintenance since the vehicle remains under warranty. Lastly, if the lease period has expired and the buyer is still on the fence about owning a car, a lease offers the ability to return the car to the dealer and just cover any applicable fees.

Leasing may not be the right fit for drivers who:

  • Want to gain equity in their vehicle

  • Want to make modifications to the vehicle

  • Are high mileage users

Throughout a leasing period, payments made are applied to the lease agreement. This means the driver does not have any ownership rights to the vehicle, and they are not gaining equity. Leased vehicles also come with certain limitations. They can not be customized or modified in any fashion from their original state, and users must abide by the mileage limits to avoid additional fees. It isn’t until the lease has expired, and a driver decides to purchase the vehicle that they have ownership rights. Only then do they have the freedom to customize it or profit from the resale value or trade-in value.

Rent-to-own

Rent-to-own is a good option for drivers who:

  • Car leasing or car financing is not an option

  • Are okay owning a used vehicle

  • Have poor credit, or no credit history

  • Have car insurance

  • Have a stable income

Renting-to-own is typically a last-ditch effort for buyers to purchase their own vehicle if they cannot go through leasing or financing. More often than not, the cars in these programs are used vehicles. They are mechanically sound cars, and though they could otherwise be sold at auction, dealers will often mark the total cost up by 100% of the auction rate. Car dealerships can get away with this tactic since they are marketed towards buyers who have low to no credit but still have a stable income to make the car payments. Since rent-to-own vehicles usually do not have warranty coverages, the buyer must have car insurance. It should be noted that not all rent-to-own programs operate in this manner. Refer to the “Where can I find a lease or rent-to-own car?” section to learn about some reputable, highly-rated rent-to-own companies.


Rent-to-own may not be the right fit for drivers who:

  • Want to own a new vehicle

  • Car leasing or car financing is an option

  • Have a stable income

  • Have a high credit score

Drivers who want to own a new vehicle and can get a leased car or finance a car will have a better chance of getting a new car with those methods. Additionally, buyers with a stable income and good credit will more than likely want to continue to improve their credit score. Weekly/bi-weekly payments for rent-to-own vehicles are much higher than monthly car lease payments and are typically not reported to credit bureaus. Having large weekly or bi-weekly payments being withheld from a credit report can harm credit scores since the payments aren’t being added to the credit history.

Can I lease-to-own with bad credit?

Car dealers only make money by selling or leasing vehicles from their lots. That means that car salesmen have an incentive to work with any buyer who comes through their doors -- even if they have poor credit. It may not be easy to get a car lease with bad credit, but it’s not impossible. Below are some tips to help ease the process:

  • Have all required paperwork in-hand

  • Making a good first impression is important if the dealership recognizes you are prepared they will see you as responsible and easier to work with

  • Make a down payment

  • Down payments show you are willing to put some skin in the game and are less likely to miss your car payments

  • Use a cosigner

  • A cosigner is someone who has a better credit score than you and is willing to vouch for your ability to make payments. A cosigner greatly improves your odds of getting approved for a lease.

  • Proof of a stable income or sufficient funds to cover car payments

  • Dealers are more likely to lease vehicles to users who can prove they can make on-time payments in full.

Where can I find a lease or rent-to-own car?


Lease-to-own programs can be found at most commercial dealerships. It is best to speak to your dealer and see what options they have available to offer you. When it comes to rent-to-own programs, there are several reputable companies to choose from. Auto Credit Express partners with a nationwide network of dealers that specialize in rent to own auto financing. Visit their website to find their closest rent-to-own car dealership in your area.


The car rental company, Hertz, has a service called Hertz Rent2Buy. The program allows customers to test drive a used rental car for three days before deciding to purchase it. During that time, you pay the standard rental rate and have the freedom to use the vehicle however you see fit. You can even take it to a trusted mechanic to ensure its mechanically sound. At the end of the three days, if you like it, you can speak with the salesman to talk details about the purchase process. Use the Hertz website to search for eligible rent-to-own cars near you.

Auto Credit Express and Hertz Rent2Buy are just a couple of the available rent-to-own programs. It’s important to do your research and due diligence to find the program that best suits your financial status and what you are looking for in a vehicle.

Have you thought about refinancing?


Now that you know your options when it comes to leasing-to-own or renting-to-own, find out more about how you can lower your current or future loan payments using WithClutch!

WithClutch can help save you money and time by allowing you to refinance from the comfort of your home in less than 20 seconds. If this is something that appeals to you, follow these simple steps to begin your refinance journey!


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