How do rent to own cars work?

If you’re on the hunt for a new car, you probably know that you can buy one with your own money, get a car loan or lease a car.

But what about rent-to-own cars?

How do they work and could this option be right for you?

Let’s take a look.

Key Points

  • A rent-to-own car is a car that you rent for a set period of time before eventually owning it

  • You usually have to pay a lump sum at the end of the rental period to buy the car

  • There can be fewer credit checks involved with a rent-to-own car in comparison to getting a car loan

  • It’s usually cheaper overall to buy a car (either by getting a car loan or purchasing it outright) rather than renting to own


When it comes to getting a new set of wheels, there are lots of options available: such as taking out a car loan, buying a car outright or leasing a car for a set period, to name a few.

But what if you want to lease (or rent) a car for a while and own it later on?

This is where rent-to-own cars come in.

What is a rent-to-own car?

A rent-to-own car is a car that you rent for a set period of time before eventually owning it.

The regular payments that you make on a rent-to-own car go towards the cost of buying the car.

With a rent-to-own car, you become the owner of the car at the end of the rental period after you’ve made your final payment.

But that can vary: some dealers also offer the option to give the car back,similar to a traditional car lease.

Depending on the agreement, you might also have to pay a lump sum at the end of the rental period to own the car.

Is a rent-to-own car a good idea?

There are some situations where a rent-to-own car might be best for you, including when your credit score isn’t great or if you’re having trouble getting approved for a car loan.

But if you want to own the car you’re renting or leasing, it’s often cheaper to buy the car outright.

Either way, there are lots of lenders on the market, including some that could offer you a car loan with better rates and features than a rent-to-own agreement.

It’s a good idea to look at all your options before jumping to a rent-to-own car.

Doing some research could save you a lot in the long run.


What are the pros and cons of rent-to-own cars?

Here are some of the potential pros and cons to consider when looking into rent-to-own cars:


  • May involve fewer credit checks. Your provider might not do as many credit checks as a lender would when you apply for a rent-to-own car, which can be handy if your credit score isn’t great.

  • Improve your credit score. Making your rental payments on time could positively impact your credit score, giving you access to more borrowing options in the future.

  • Consistent payments. Some rent-to-own car agreements include insurance and registration as part of the ongoing cost, so you could avoid being hit with any surprise bills mid-year.


  • More expensive. There are extra fees and charges associated with a rent-to-own car, which make it more expensive in the long run.

  • Lump sum payment. You might have to pay a lump sum to become the owner of the car at the end of the rental period.

  • You may be locked in. Depending on the agreement you sign, you could be locked into buying the car at the end of the rental period, even if you don’t want it anymore.

  • You don’t own the car while you’re renting it. Until you’ve reached the end of the rental period, you don’t own the car. That means you can’t alter it, sell it or claim it as an asset for other borrowing purposes.

  • Lack of flexibility. If your circumstances change during the lifetime of the loan, you can’t change your vehicle.

What is the difference between novated leasing and rent-to-own?

With a rent-to-own car, the payments aren’t taken from your pre-tax income.

Unlike a novated lease, you might be obligated to buy the car at the end.

With a novated lease, money is taken from your pre-tax income to pay for a car – usually as part of an agreement between you, your employer and a leasing company.

This reduces your taxable income.

Once the novated lease period ends, you have the option to pay a lump sum (known as a ‘balloon payment’) to buy the car, or you can sign a new lease on a different car.

Is renting a car cheaper than owning?

It all depends on your situation.

As a general rule of thumb, renting or leasing a car ends up being more expensive in the long run than owning one as insurance and registration are included in the cost.

When you own a car outright, it’s important to put aside money for repairs and maintenance so you’re not left with a nasty surprise when those bills are due.

Even with these added expenses, the cost of renting a car is often higher when you take into account regular rental payments and fees.

Unless you have a rent-to-own agreement, you can’t sell a rental car or consider it an asset.

However, if you only need a car for a while or you prefer to upgrade every couple of years, leasing a car could be a better fit for your situation.

Who pays insurance on a rent-to-own car?

It’s typical for insurance to be covered as part of the rent-to-own agreement.

But this isn’t always the case, so it’s worth checking the fine print so you know exactly what’s covered.

Are rent-to-own car payments tax-deductible?

If you use the car for work purposes, rent-to-own car payments may be partly or fully tax-deductible.

Similarly, if you take out a car loan to buy a car that will be used for work, you might be able to claim some of the cost on your tax.

In any case, if you use a car for work it’s worth discussing the potential tax advantages with an accountant or tax adviser.

Do you need a down payment for a rent-to-own car?

It depends on the rent-to-own provider, but typically you’ll need to make a down payment or security deposit as part of the agreement.

Costs can vary, so it’s worth shopping around to get an idea of your options.

Getting a car is a big decision, and there are a lot of options to make sense of.

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