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How Does a Car Lease to Own Program Work

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iStock_000054690736_Large (1)How Does a Car Lease to Own Program Work

There are many used car dealers that offer consumers a chance to lease a vehicle, rent to own or lease to own a vehicle. This is the same concept that home sellers use in their rent-to-own programs. This program is especially ideal for consumers with a not-so-good credit rating and someone who probably is unable to buy a vehicle from the large auto dealer. Leasing a vehicle through finance options is different from leasing to own the vehicle.

The Traditional Option

The traditional lease contract requires that you pay a monthly premium to utilize the vehicle. In this case, the vehicle is still owned by the auto dealer, even though you are still driving it. The agreement might have an option to purchase. Then, you can purchase the vehicle when the lease agreement ends. The lease to own program facilitated by the auto dealer allows you to buy the vehicle after the lease ends.

The Consumer

Auto dealers make the lease to own program available to car buyers who are experiencing financial challenges. This could be due to a lack of credit or bad credit resulting from past financial setback. With a lease to own program, the auto dealer maintains control and possession of the car title. As long as there is an agreement between the consumer and the auto dealer, the vehicle will be owned by the auto dealer. Usually, the consumer is promised that payments will be either biweekly or monthly. In a lease to own transaction, the auto dealer does not usually ask the consumer for a down payment. If a down payment is requested, it is usually very low. Finance charges are not required, neither are other fees or taxes during the period that the agreement is ongoing.

The Contract

In most cases, the lease to own contract has a term of a little more than two years where the borrower will have to pay the lease amount agreed on. Once the two year lease ends, the borrower will receive title to the vehicle and become the owner of the vehicle.

Title Loans

It is then, that the borrower can use the no-lien vehicle to get a title loan, if he or she is in a dire financial situation. Title loans require that a borrower uses collateral to secure funding. With proof of age (18 years or older), proof of income from reputable sources, original car title, and details of vehicle to assess the value, the title lender will process the loan for an approval within 30 minutes to 48 hours. Title loans are faster than the traditional loan and that is why borrowers with urgent financial situations will usually apply.

Paying on Time

If you are still paying on your lease to own contract, you know that the payment requirements are strict. You have to pay on time because late payments will only cause the auto dealer to cancel the purchase option of the lease agreement. This means that you will lose payments that you have made on the purchase option portion. Title loans are not that complicated. Once you pay on your title loan in a timely manner, and you pay it off within the thirty day allotted term period, you can borrow more money on the same collateral. In some states, you have to wait 7 to 15 days before you refinance the loan again, but that is a small requirement in comparison to the lease to own program.

The Auto Purchase Scenario

Let’s say a potential borrower goes into an auto dealership to purchase a vehicle. However, when the sales person sits down with the potential customer, the worker finds out that the borrower has a low credit score, which doesn’t offer qualification for an automobile finance. However, the prospect may have good employment history, great references and money to pay down. How can the sales person let this potential borrower walk out of the auto dealership without having another alternative?

The Sales Person

Most sales people are not going to allow that to happen. Of course, taking a chance to finance the vehicle anyway may not be the right action. Therefore, the sales person may offer the customer an opportunity to lease to own a vehicle, which does not come with so many restrictions as in the case of auto financing. The lease to own option allows the borrower to choose payments for twelve months, twenty four months or thirty six months. Usually, most borrowers will take the twenty four month or two year option. The auto dealership will assume control of the vehicle until the last payment is made by the borrower. The vehicle may have a warranty, which is optional, but it must be fully insured. If the borrower decides to go out of town with the vehicle prior to making all of the payments, this becomes a criminal offense. However, most borrowers won’t do that.

Rent to Own

Another option that is similar to the lease to own option is the rent to own option. With this particular contract agreement, the vehicle payment is made as you would when you are renting a vehicle. At the end of the contract term, the money paid while you have the vehicle will go towards the purchase of the vehicle. For example, let’s say that you want to rent to own a vehicle; you would go to the auto dealership and choose the vehicle that is placed in the program. You would put a down a deposit (down payment) and then make subsequent payments each week or on a biweekly basis. The amount of down payment and rate of interest will usually depend on your credit. If you have bad credit, you may have to find a larger down payment and pay a higher rate of interest. Additionally, there are other requirements to renting and owning a vehicle.

This could include:

  • Proof of residence
  • Income
  • Identification
  • References
  • Proof of auto insurance (full coverage)

In most cases, all the money that you pay will go towards the vehicle purchase at the end of the contract term. However, it is best to check with the dealer prior to making the final payment, just to be sure.

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