A South Africa-based startup that helps users rent cars to own has raised $10 million
The effects of the lack of access of credit for a majority of middle-class Africans show up in different ways.
One of those is that vehicle financing is typically beyond the reach of most middle-income earners who have to resort to saving for months for the large upfront costs of buying a car. It’s a different reality in most developed markets where car financing options are more readily available from traditional financial institutions.
Planet42, a car subscription company with Estonian roots, has operated in South Africa for three years by offering a workaround that allows its customers skip the initial financial outlay of car ownership and instead rent a car for a monthly payment instead.
With a notoriously inefficient public transportation system and gaps in access to credit for swathes of a large middle-class, South Africa is proving a testing ground for the Estonian-headquartered startup which has now partnered with over 300 local car dealerships specializing in used cars.
Essentially, dealerships recommend Planet42’s financing option to customers who are unable to afford the upfront costs of purchase or are interested in avoiding it altogether. The startup then verifies the customer’s credit worthiness and risk profile, based on parameters like pay-slips and bank statements.
If their financing application is approved, Planet42 buys the customer’s preferred car from the dealership and then rents it out to them on a monthly basis. The three-year old startup has so far bought and rented cars to over 2,000 customers in South Africa.
It is now betting on scaling operations and possibly expanding to other emerging markets thanks to a $10 million debt financing raise from US-based debt investor, Lendable. It follows a $2.4 million seed round it raised in June in a round led by Change Ventures, an investment firm that backs founders from Baltic states: Estonia, Latvia, Lithuania. The round also saw participation from notable angel investors, including Martin Villig, co-founder of Bolt (formerly Taxify).
With personal mobility or car ownership often seen as essential rather than a luxury especially where public transport is inefficient, buying a car is often a major goal for middle-class locals. “Saving up [for a car] is good in theory but not everyone is able to do it,” says Eerik Oja, a co-founder and CEO of Planet42. “Our customers can’t qualify for bank financing and ride-hailing daily is too expensive—and that’s where we come in.” The startup says it received more than 10,000 new applications for financing in November alone.
While paying a monthly rental fee is an attractive proposition, Planet42 also gives customers the option of outright purchase. “Not that many customers have chosen to do that,” Oja tells Quartz Africa. “They value the flexibility and stick with the rental option.”
Some of flexibility includes allowing customers return cars to dealerships when they can no longer make monthly payments. For its part, Planet 42 tries to either rent the car out to another customer or auctions it off to cover its costs.
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