Ins and outs of rent-to-own car contracts in South Africa

Rent-to-own car contracts have become an attractive value proposition for South Africans struggling to obtain more traditional vehicle finance.

According to debt advisors Everycent, rent-to-own – sometimes also referred to as rent-to-buy – is a legal agreement where individuals rent an asset or property, like a car, for a set period with the option to buy or own it at the end of the contract.

In most cases, a portion of the monthly payment goes toward the asset’s purchase price, essentially paying it off while renting it, while the rest is allocated to expenses such as insurance and maintenance.

Unlike traditional financing, rent-to-own agreements don’t require strong credit or large upfront deposits.

However, the renter must complete the full rental term and make all of the payments to get ownership of the vehicle; otherwise, the car remains the property of the service provider.

Unlike traditional financing, if a rent-to-buy stops paying their monthly premiums during the contract, they forfeit the car but don’t have to worry about outstanding debt for the unpaid balance.

This means the renter doesn’t build equity in the car until the agreement is fulfilled.

Rent-to-own advantages

The key advantage of rent-to-own agreements is that credit requirements aren’t nearly as strict as when applying for a loan from a bank

“People with poor or no credit history qualify because credit requirements are less strict,” said Everycent.

Additionally, the upfront cost is lower as the lender usually only asks for minimal to no deposits.

You also don’t have to stress about finding competitive insurance rates and budgeting for yearly services as these are all included in your single monthly payment.

Rent-to-own contracts provide a degree of flexibility, too, as upgrades or changes are allowed under certain conditions during the contract.

As long as you pay your dues on time and in full, you can also be assured that the wheels will become yours at the end of the agreement provided you’re working with a reputable service provider.

Rent-to-own disadvantages

Should you be interested in following the rent-to-own route, you must also be aware of the disadvantages associated with it.

First and foremost, it’s more expensive overall than normal bank finance.

“The total payment often exceeds the car’s market value, resulting in higher costs,” said Everycent.

Ownership isn’t guaranteed, either.

“When the renter can’t afford the car payments it could lead to the repossession of the vehicle which means the renter loses all of their equity in the vehicle,” said the experts.

The contracts are also very strict. Renegotiating terms is difficult, especially when financial circumstances change.

If you suddenly find yourself underwater, you won’t be protected by debt review in a rent-to-own agreement.

“Rent-to-own agreements can not fall under debt review, which means there is no protection against repossession if payments are missed,” said Everycent.

Lastly, you’ll have fewer vehicle options as you’ll only be able to choose from what a particular company offers and can’t get anything your heart desires.