Be wary of ‘rent-to-own’ car financing deals

The “rent-to-own” model of ownership, for people who wouldn’t otherwise qualify for finance through regular channels, is taking off globally – but before you rush out to sign up, be aware of the potential pitfalls. It does sound too good to be true though: you don’t qualify for credit from any financial institution, or even a store card at a clothing retailer, yet you’re offered finance for a vehicle.The adverts will probably draw the attention of anybody with a tarnished credit history: self-employed people with an unstable income, those who hit a financial wobble or lack a credit record, and those with judgments against them.

Option to buy

Type “rent-to-own” or “rent-to-buy” into a search engine and you will probably be inundated with offers of vehicles. Appliances have been sold via rent-to-own and hire purchase agreements since the 1960s, but rent-to-own for bigger movable and immovable property’s a more recent phenomenon.

Rent-to-own goods are leased in exchange for a weekly or monthly payment, with the option to buy them at some point. The transaction differs from a traditional hire purchase in that the lessee can terminate the agreement any time, without penalty (unless a deposit has been paid and therefore forfeited) and simply return the goods.

In Britain, there have been calls to regulate the rent-to-own industry – in particular retailers that entice low-income families with appliances and furniture that they pay off weekly.

In a column in the Guardian, Nils Pratley said the country’s Financial Conduct Authority should “deal with industry the same way it did with payday lenders and target all forms of high-cost credit”.

Click here to read the whole article

Leave a Reply

Your email address will not be published. Required fields are marked *