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10 Easy Online Loans (2020)

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You can find easy online loans if you know where to look. Numerous online lenders have entered the marketplace over the last decade, and most offer great interest rates and relaxed acceptance standards to compete with the pack.

While that may mean less profit for them, it can also mean a better loan for you. Check out our recommendations below and start the research you need to find easy loan approval.

Installment Loans | Cash Loans | Credit Cards | FAQs

An installment loan is the most common type of personal loan. These loans require you to make a series of monthly payments, and they charge an annual percentage rate, otherwise known as APR.

Installment loan terms can range from three months to six years of payments, depending on the lender and the total amount borrowed. Just remember that the longer you stretch out your loan, the more interest you’ll pay to satisfy the debt.

The options below are all part of online lending networks. That means you’ll submit one application to a single network that will send your request to its partner lenders.

Those lenders will consider your application and, within minutes, you may receive one or more loan offers to choose from. The best part about these networks is that several lenders will look at your request and then compete for your business. This may yield you the best loan offer for your credit situation.

  • Loans from $500 to $10,000
  • All credit types accepted
  • Receive a loan decision in minutes
  • Get funds directly to your bank account
  • Use the loan for any purpose

You may qualify for a personal loan of up to $10,000 with CashUSA.com. In some cases, you may be offered a revolving line of credit, which works very much like a credit card. Once you make a payment on a revolving credit line, you can reuse the credit you paid off.

To qualify for a loan, you must be 18 years or older, a U.S. citizen or permanent resident, and have an active checking account, email address, and phone number in your name. Applicants must also provide proof of at least $1,000 in monthly income, after taxes.

If you meet those requirements, you can fill out a short survey that takes five minutes or less to complete. You could receive one or more offers sent to your email within minutes of applying.

Meeting the criteria to apply doesn’t guarantee loan approval. Although CashUSA has very flexible acceptance requirements, lenders may shy away from approving larger loans for applicants who have damaged or thin credit files.

  • Loans from $250 to $5,000 available
  • Cash deposited directly into your account
  • Get money as soon as tomorrow
  • Bad Credit OK
  • More than 750,000 customers since 1998

CreditLoan.com requires applicants to have an active checking or savings account. You can also only have one open loan through the network’s lenders. Once you’ve paid off your current loan, you’re free to apply for another.

CreditLoan is not an actual lender, but rather a free referral service that connects borrowers and lenders. If approved, the network will direct you to the lender’s website, where you’ll complete the application and finalize your loan.

The network and its lenders typically do not consider applications for consumers who have a pending bankruptcy case. Each lender sets its own interest rates.

If you receive multiple loan offers, be sure to study each one closely, as they likely will not offer the same terms, interest rate, or monthly payment.

  • Loan amounts range from $500 to $5,000
  • Experienced provider established in 1998
  • Compare quotes from a network of lenders
  • Flexible credit requirements
  • Easy online application & 5-minute approval
  • Funding in as few as 24 hours

Bad Credit Loans requires you to be a legal citizen of the U.S. and 18 years or older to apply for one of its loans. You’ll also need to provide a valid email address, working phone number, and bank account details of where you’d like the loan money transferred.

Providing these details doesn’t guarantee approval, but this network lives up to its name and typically provides easy loans for consumers who are in a jam and need a quick loan. And BadCreditLoans.com doesn’t limit itself to personal loan options — you can also apply for an auto loan or a student or business loan.

  • Loan amounts range from $500 to $35,000
  • All credit types welcome to apply
  • Lending partners in all 50 states
  • Loans can be used for anything
  • Fast online approval
  • Funding in as few as 24 hours

PersonalLoans.com offers the largest maximum loan amount among these options with loans of up to $35,000 available to qualified borrowers. The minimum loan amount is $500.

This network specializes in personal loan options that offer a low minimum payment and interest rate, which makes for more manageable debt repayments. And, since this network offers larger loan amounts, it isn’t only reserved for consumers who need a bad credit loan.

The PersonalLoans network is also among the largest of all the online lending networks. Although the group boasts lenders in all 50 states, you aren’t required to work with a lender in your area. The beauty of easy online loans is that you can borrow money from a lender anywhere in the U.S. and set up recurring payments from your checking account or another bank account.

Depending on the amount of your loan and the lender’s terms, you could have between three and 72 months to pay off your loan.

Easy online loans tend to offer quick payouts via a wire transfer to your linked checking account or another bank account. That may work if you have 24 hours to wait for your funds.

Sometimes, though, you need a quick loan that pays out in cash. If this sounds like you, the lenders below may offer just what you need.

Keep in mind that a cash loan often includes a higher interest rate than a traditional online lender. The loan product you receive may be a payday loan that charges astronomical fees if you don’t pay it off on time.

You may find more luck with a traditional online installment loan if you’re looking for a larger loan amount. Most cash loan options tend to cater to consumers who may not have a bank account and need quick cash before payday.

As such, you will likely have a shorter repayment time frame and your total loan amount may be due in one lump sum in as soon as two weeks.

  • Short-term loans up to $2,500
  • Online marketplace of lenders
  • Funds available in as few as 24 hours
  • Simple online form takes less than 5 minutes
  • Trusted by more than 2 million customers
  • Not available in NY or CT

MoneyMutual made its name as a next business day online installment loan option, but the network’s lenders offer in-person cash loan options as well.

You can choose to search only for local lenders when you apply through MoneyMutual. Some of these lenders offer cash pickup options if you qualify. Keep in mind there may be an added service charge for this type of transaction.

The annual percentage rate on a cash loan offer will likely be much higher than a direct-deposit loan because there’s more risk involved for the lender.

Many cash loans don’t require an active checking or savings account for approval. Installment loan providers tend to favor borrowers who have an active bank account because they use it to set up an automatic, recurring monthly payment that helps them collect their money.

If you’re applying for a loan without a bank account, the lender has little recourse if you default. Since they’re taking on added risk, you should expect to pay a little more.

  • Loan amounts range from $100 to $1,000
  • Short-term loans with flexible credit requirements
  • Compare quotes from a network of lenders
  • 5-minute approvals and 24-hour funding
  • Minimum monthly income of $1,000 required
  • Current employment with 90 days on the job required

CashAdvance.com is a payday loan option that offers cash pickup locations around the country. Loan terms won’t include a monthly payment. Instead, you’re required to repay your loan in one lump sum — plus interest — within a month, sometimes sooner.

That interest rate is what can make these loans very costly. With rates as high as 2,290%, these ultra-short-term loans can ensnare you into a debt trap if you do not pay it back on time. That’s why CashAdvance.com suggests on its website that you should only use its service as a last resort and in the case of a financial emergency.

Keep in mind that some states do not legally allow payday lenders to operate within its borders. This includes Montana, Oregon, Utah, Arizona, Texas, Arkansas, Georgia, North Carolina, West Virginia, Maryland, New Jersey, Pennsylvania, New York, Connecticut, Massachusetts, Vermont, New Hampshire, and Maine.

Most people who search for easy loans online want to receive their money quickly. But if you can wait a little bit longer, you may be able to find a much better deal through a credit card.

You repay your credit card debt just as you would an installment loan, with monthly payments that slowly satisfy your balance. The best part is that a credit card provides a revolving credit line, so you can reuse your credit once you pay it off.

Best of all, you can avoid interest altogether with a credit card loan by paying your entire balance within your card’s grace period.

The catch is that most easy online loans can wire your borrowed funds to your bank account within one business day. With a credit card, you may have to wait for between seven and 10 business days for your card to arrive in the mail, although some issuers will expedite shipping by request.

BAD CREDIT RATING

★★★★★

4.8

  • All credit types welcome to apply!
  • Free access to your Vantage 3.0 score From TransUnion* (When you sign up for e-statements)
  • Monthly reporting to the three major credit bureaus
  • See if you’re Pre-Qualified without impacting your credit score
  • Fast and easy application process; results in seconds
  • Free online account access 24/7

See website for Details

N/A

25.90% – 29.99%

See website for Details

Bad, Poor Credit

The Surge Mastercard® doesn’t charge processing or setup fees to open your account, but you will be charged an annual fee, based on your credit history. That fee will deduct from your initial available balance.

You can prequalify for this card on the issuer’s website without accruing a hard inquiry that could hurt your credit score. If approved, you’ll receive your card in the mail in seven to 10 business days. Once it arrives, you can activate the card over the phone or online and begin using it immediately.

BAD CREDIT RATING

★★★★★

4.7

  • Pre-qualifying today will not affect your credit score
  • Less than perfect credit histories can qualify, even with prior bankruptcy!
  • Mobile friendly online access from anywhere
  • Fraud protection for stolen or lost cards
  • Account history is reported to the three major credit bureaus in the U.S.

N/A

N/A

24.9%

$0 – $99

Fair/Good

The Indigo® Unsecured Mastercard® – Prior Bankruptcy is Okay is easy to be approved for but may charge an annual fee based on your credit history. One potential catch with this card is its low initial credit limits, and the annual fee (if you’re charged one) will be deducted from your line of credit upon activation.

Still, if you need a small and easy online loan, this card accepts most applicants and can provide relatively quick access to a revolving credit line, among other features.

BAD CREDIT RATING

★★★★★

4.5

  • Prequalify for a card today and it will not impact your credit score
  • Less than perfect credit is okay
  • Mobile account access at any time
  • Protection from fraud if your card is stolen
  • Account history is reported to the three major credit bureaus in the U.S.

  • *Dependent on credit worthiness

N/A

N/A

24.9%

$35 – $99

Bad, Poor Credit

The Milestone® Mastercard® – Less Than Perfect Credit Considered is part of a family of cards offered by Milestone that each has a specific credit limit and interest rate. The Milestone® Mastercard® is the most popular card it offers.

You’ll pay no security deposit or one-time fees when you apply. A variable annual fee and a competitive interest rate make this card a winner for consumers who may have a low credit score.

You can find the card that works best for you by filling out a prequalification form on the issuer’s website, after which you may receive an offer for the card that best matches your needs and credit situation.

BAD CREDIT RATING

★★★★★

4.5

  • Checking Account Required
  • Fast and easy application process; response provided in seconds
  • A genuine Visa credit card accepted by merchants nationwide across the USA and online
  • Manageable monthly payments
  • $300 credit limit (subject to available credit)
  • Reports monthly to all three major credit bureaus

N/A

N/A

See Terms

See Terms

Fair, Bad Credit

The Total Visa® Card can offer fast access to a line of credit, but it isn’t the most affordable option on this list thanks to the card’s one-time program fee due at the time of approval. You’ll also have to pay your first year’s annual fee upon activation before you can use your card.

Subsequently, the annual fee increases starting in year two. These charges add up fast, but if you need a bad credit loan or quick access to a small amount of cash, this card may work for you thanks to its lenient approval requirements.

Online loans may not be as intuitive as a traditional loan from a bank or credit union. There’s no need to go to the bank and fill out lengthy forms and wait days for approval.

Instead, online loans can be completed from the comfort of your home and you can receive an approval within minutes. Below we answer common questions about the process and explain how online lending networks have streamlined getting a loan for everyone and every need.

What is an Online Loan?

An online loan works like any other loan you would get from a bank or credit union, only you apply and complete the lending process online. Online loans won’t limit your money search to traditional financial institutions, either.

Thousands of online lenders exist across America. Most have an online presence that allows consumers to apply for loans in a matter of minutes.

Thanks to intelligent underwriting, the same system that allows you to apply for a loan can typically make a credit decision in a matter of seconds. Most people can complete an online loan application and have the money deposited directly into a linked checking account without ever actually speaking to a person.

And, since these independent lenders don’t have the same overhead as large banks, you may be able to find more affordable loans with better interest rates from an established online lender.

Keep in mind that not every online lender has the accreditation needed to operate in all 50 states. If you’ve chosen a lender who isn’t licensed in your state, you’ll likely receive a pop-up notice before you complete your application.

Or you can choose an online loan marketplace and not have to worry about your location because a lending network, like those listed above, will distribute your loan request to all of the partnered lenders on its network that service your area. The lenders know they’re competing against other lenders for your business, which can improve your chances of being approved for a loan with an interest rate that works for you.

What Credit Score Do I Need to Get an Online Loan?

There isn’t a magic number that serves as the dividing line that determines whether a loan will be approved or rejected. Different lenders have their individual acceptance standards — and no lender publishes its minimums for acceptance.

That said, you can follow certain guidelines that may help you apply only with lenders that give you the best chance of acceptance. Banks traditionally only want to lend to consumers who have a good or excellent credit score. On a FICO range of 300 to 850, “good” credit constitutes any credit score of 670 or higher.

FICO Score® Ranges

But that doesn’t mean you can’t receive loan approval if you have a sub-670 score. In fact, finding an online loan is easier than you think.

So many online lenders exist today that there’s simply too much competition for consumers who have good credit. Many lenders have to wander outside of their comfort zones to make a profit, which means entering the bad credit loan marketplace.

Most of these lenders partner with online lending networks, which act as a referral source that sends would-be lenders to their doorstep.

MoneyMutual, for example, partners with many bad credit lenders, some of which, according to reviews, have approved loans to applicants with credit scores below 500. BadCreditLoans.com lives up to its name by approving loans for applicants who may have received rejections from traditional lenders.

Just keep in mind that a bad credit loan typically features upfront costs and higher interest rates. That’s why it’s vital to understand the state of your credit score before applying for a loan. Applying for loans you won’t qualify for will only add hard inquiries to your credit report that could lower your score.

What is the Easiest Loan to Get?

There’s strength in numbers. The more options you have, the better your deal.

That’s why online loan networks provide the easiest path to a loan. If you apply for a single loan product from a direct lender, you’re putting all of your eggs in one basket. When you apply through a lending network, you’re submitting a single application to dozens of lenders throughout the U.S.

Direct Lenders vs Lending Networks

Different networks meet different needs. For example, you can consider MoneyMutual for a small personal loan, or you could turn to BadCreditLoans.com for a competitive auto loan or home loan offer. Most networks offer next business day funding.

Each lender has different approval requirements. Some may specialize in bad credit loans, some may give larger loan amounts, others may offer a lower monthly payment.

Many lending networks can return with a loan decision within minutes of your application, no matter what time of day or night you submit your form. It’s important to understand that every loan offer comes from a different lender.

Just as they all have different specialties, they also offer different terms. The loan with the lowest monthly payment could also be the most expensive overall. Examine your interest rate, the overall total needed to satisfy the loan, and what kinds of upfront fees or other penalties may exist during the life of your loan.

What is the Best Online Loan?

This depends on your needs. If you’re looking for a personal loan, you should consider the amount you’ll need and your credit situation.

Our top choice, MoneyMutual, offers a large network of lenders, but only offers short-term loans of up to $2,500.

  • Short-term loans up to $2,500
  • Online marketplace of lenders
  • Funds available in as few as 24 hours
  • Simple online form takes less than 5 minutes
  • Trusted by more than 2 million customers
  • Not available in NY or CT

PersonalLoans.com, on the other hand, offers qualified applicants up to $35,000 and 72 months to repay larger loan amounts.

  • Loan amounts range from $500 to $35,000
  • All credit types welcome to apply
  • Lending partners in all 50 states
  • Loans can be used for anything
  • Fast online approval
  • Funding in as few as 24 hours

These are unsecured loan offers, which means you won’t have to offer an item of value — such as your home or car — as collateral for approval.

Every network’s lenders offer fast approvals and funding. Most provide next business day funding to a linked checking or other bank account. Speed shouldn’t play a factor in choosing the best online loan because most move quickly.

But if the timing isn’t a critical issue, you may want to consider a credit card. A credit card offers a revolving line of credit that you can use over and over. And you can avoid paying interest if you pay the loan off within the grace period.

The only catch is that very few cards allow you to use your new line of credit as soon as you’re approved. That means you’ll have to wait five to 10 business days to receive your card and activate it before you can spend your borrowed funds.

Can I Get a Loan with No Credit Check?

Very few lenders will hand out money without some proof that you can repay the debt. That typically comes from a credit check, where the lender can see your financial history, including any late payments or past defaults.

Without that information, the lender must blindly trust that you will repay your loan. Not many businesses would last if they based their lending decisions on trust and hope.

That said, a few loan options exist that don’t require a credit check. Just be ready to pay a lot more to borrow money this way.

That’s because any lender willing to take that kind of risk wants a substantial payoff for the risk they assume. That payoff for the lender comes in the form of finance fees and high interest rates charged to the borrower.

No Credit Check Loans

The most popular type of no-credit-check loan is a payday loan, otherwise known as a cash advance. These loans are not installment loans. Instead, payday lenders base your loan approval on your verifiable income, which can be done by providing a pay stub or bank account statement.

Instead of making a monthly payment on your loan, you’re required to repay the full amount (plus interest) within a period that ranges from one week to one month.

The annual percentage rate on these loans can climb well into four-figures. And it gets even worse if you don’t pay your loan off on time. One lender once borrowed $400 on a two-week loan and ended up paying well over $12,000 to satisfy the debt.

There’s a reason these lenders often state on their websites that you should only use their services as a last resort. Proceed with caution.

What is a Loan Origination Fee?

Lenders may charge an origination fee upfront for processing a new loan application. These aren’t always standard and not every lender charges origination fees, but most bad credit lenders use them as compensation for the time it takes to process your loan.

Some lenders may charge a flat rate and others may charge you for a percentage of your overall loan total. So, for example, a lender that charges a 1% origination fee would collect $30 on a $3,000 loan.

Some lenders may require this fee in cash, but most will deduct the fee from your loan payout.

Loan Origination Fee Example

Most percentage-based origination fees range between 0.5% and 1% of the total loan amount, though you can sometimes negotiate a lower fee on a larger loan.

The U.S. government enacted several fair lending laws following the financial crisis of 2008 that limits ways in which a lender can receive compensation, including lowering origination fees and other hidden charges.

Will I Need a Checking Account to get a Loan?

Almost every online lender will require an active bank account in your name to consider your application. That’s because these lenders aren’t necessarily located in your area. If you stop making payments, they can’t come knocking on your door to chase your payment down.

But what lenders can do is schedule recurring payments from a linked bank account that will automatically deduct the amount you owe on your due date. This provides some peace of mind to the lender, who typically doesn’t want to rely on you sending in a check or scheduling your own online payment each month.

If you don’t have a checking account but still need a loan, your best bet is to shop your needs to lenders in your area. A local lender is more likely to consider this type of loan request, though you may have to settle for a secured loan.

This means you’ll have to use something of value, such as a vehicle or piece of jewelry, as collateral to secure the loan. That way if you stop making payments, the lender has full authority to liquidate the collateral to satisfy your debt.

Another option is to consider a credit card loan. A few card issuers will consider your application for credit even if you don’t have an active checking account.

If none of those options work, consider setting up a checking account at a local bank or credit union or researching one of the many online banks that make signup easy and rarely have oppressive minimum balance requirements.

The simple act of setting up a bank account can open you to a host of loan options that you otherwise couldn’t obtain.

Can I Get an Online Loan from a Credit Union?

In most cases, the answer is yes. Thanks to the competition from larger banks, most credit unions have invested heavily in technological advances that provide online banking, mobile applications, and other perks to members.

This typically includes access to an online portal where you can apply for a loan. However, these loans are only available to members of the credit union. You can fill out your application on its website, which the system forwards to a loan officer at the credit union.

While the turnaround on these loans isn’t as fast as an online lender that provides a decision in minutes, you should still hear something back within a day or so, excluding weekends and holidays.

The slower response time happens because many credit unions manually underwrite every loan application. That means someone has to look over your application and run a credit check before making a decision and notifying you, whereas most online lenders have technology that does this in a matter of seconds.

If your credit union experiences a high volume of loan applications, you could get stuck in line and have to wait to hear back. High demand could also lower your approval odds if you don’t have good credit.

What Interest Rate Can I Expect to Pay?

Interest rates rely heavily on your credit score and payment history. An interest rate is essentially the payment the lender gets for taking the risk in lending you money. The lower the risk, the lower the fee.

Average Personal Loan APR by Credit Score

If you have an excellent credit score and a history of on-time payments, you may find a personal loan with an interest rate of under 5%. On the flip side, a bad credit score and recent late payments or defaults can land you a triple-digit interest rate on a short-term loan.

Thankfully, most states have laws in place that limit the amount of interest a lender can charge. Depending on your state, you could pay as little as 5% or as much as 25%. Many payday loans operate under different laws that allow them to charge upwards of 1,200%.

Usury laws only apply to the state you live in, not where the loan originated. So, for example, if you live in Florida and accept an online loan from a lender in Delaware, you’re subject to the interest rate laws for the state of Florida.

If you’re ever offered a loan with interest rates that exceed your state’s limitations, report the lender to local government authorities and the Better Business Bureau.

Is a Payday Loan a Good Idea?

A payday loan is almost never a good idea. There are instances, though, where your financial situation may make a cash advance your only option to get out of a jam.

A payday loan is a super-short term loan that’s designed to last between one week and one month. They’re meant to provide financial relief between paydays, hence the name.

These loans often charge three-digit interest rates that could yield interest charges of a few hundred dollars on a loan that lasts only four weeks. And, best-case scenario, that’s all you’ll pay.

Payday Loan Interest Rate Map

This map shows the average interest rate charged for payday loans in each state. Gray states indicate where payday loans are illegal.

The internet is filled with payday loan horror stories from people who borrowed a few hundred dollars for an emergency and ended up paying $10,000 or more to satisfy the debt.

If you cannot pay your loan in full by the agreed-upon date, the lender will offer you a new loan to cover the costs of the old one. This will include penalty charges and a higher interest rate. If you cannot pay that loan off, you’ll have to sign a third loan that will be even more expensive.

The loans will continue to pile up until you can finally pay off the debt.

Although the average payday loan has a two-week repayment period, studies found that the average payday loan borrower carries their debt for five months and spends an average of $520 in fees to repeatedly borrow $375. The average finance fee at a payday loan storefront is $55 per two weeks.

Over the last decade, online loans have increasingly risen in popularity. These fast and accessible loans work on your schedule — you can apply at any time of the day or night and from any location you choose.

And instead of waiting for a loan officer to crunch numbers and check references, your loan decision will arrive within minutes. These easy online loans are a great way to secure a competitive interest rate and loan terms, which makes them winners in our book.

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Bad Credit

Car Leasing Guide: Everything You Need to Know

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Car Leasing Guide

At first blush, car leasing seems like a grand idea. After all, you can get more car for the same monthly financing payment. Who wouldn’t want that? Well, there’s a lot more to weigh between financing and leasing than simply getting more car for your buck. Although, that is the primary reason people lease.

Numbered among the other reasons people lease is the thrill of that new car smell. Some folks simply like the idea of driving a new car every two or three years. Leasing also streamlines writing off your vehicle as a business expense at tax time.

Another reason to lease is that sometimes the carmakers offer really sweet leasing deals that aren’t available to those financing a car purchase. Repeat leasers also always have a car that’s usually under a factory warranty. And finally, when the lease expires, you don’t have to negotiate a trade-in value or go through the selling process. You just hand over the keys and walk away. Easy peasy, right? Well, usually. Read on.

What is a Car Lease?

A car lease is basically a long-term rental for a contracted number of months. Unlike financing a car purchase based on you eventually owning the car, leasing is like a long-term rental. You are still locked into the deal for a contracted number of months and a monthly payment.

However, instead of paying down a loan and building equity, you are paying for the car’s estimated lost value (depreciation) during the term (length) of the lease. You are paying for that and the interest on the money borrowed to underwrite the lease.

What Do You Need to Know Before Leasing?

Arguably the key concern when considering car leasing is, on average, how many miles you drive yearly. According to the United States Department of Transportation, most Americans drive a total of 13,476 miles per year.

Signing a lease binds you contractually not to exceed an established mileage limit. That limit, or mileage cap, is averaged out over the number of years in the agreement.

Depending on the lease, agreements range from 10,000 miles per year to as many as 15,000 miles per year. Whatever the limit might be, the leasing company will penalize you for every mile above the limit. Generally, that penalty can be between $0.12 to $0.30 per excess mile. At $0.30, that works out to $300 for every 1,000 miles over the limit. It can add up.

Can I Negotiate the Price of a Leased Car?

Yes. As with a financing deal, you can save yourself money by negotiating down the car’s selling price you are going to lease.

What is the Money Factor in Leasing?

When you finance a car, you must also pay for the money you are borrowing. What you pay is called interest, and it’s displayed as a percentage (2.5%, 3.0%, and so forth). You need to know the rate of interest you will be paying. The higher the interest rate, the higher your monthly payment.

When you lease, you must also pay for the money the lessor used to buy the car. In leasing, however, the interest is called the money factor. It’s calculated and displayed differently (0.0010, 0.0023, and so forth). How in the world do you know what the interest rate is on a lease, right?

To translate the money factor into a form more easily understood, just multiply it by 2,400. So, 0.0023 x 2,400 = 5.5%. We know: Why don’t they just say that?

Who is Responsible for Maintaining a Leased Car?

The leasing company expects you to maintain your leased car carefully. That means following the maintenance schedule outlined in the owner’s manual. The good news is, many new vehicles come with some sort of free maintenance plan.

At the end of the leasing period, an agent of the leasing company will inspect the vehicle for any damage beyond “normal” wear and tear. Determining what is normal is entirely up to the inspector. If the inspector decides any damage is beyond normal wear and tear, you will be charged for it.

Who is Responsible for Insuring a Leased Car?

You are responsible for insuring your leased car. The leasing company dictates the amount of coverage you must have for the vehicle. Determine what those amounts will be and contact your automobile insurance agent to establish the annual premium before you lease.

What if I Want Out of My Lease Early?

It bears repeating: A car lease is a binding contract. The leasing company sets the monthly payments based on the length of the lease established in the agreement. If for some reason — any reason — you want or need to bail on the lease early, there will be a penalty for doing so.

At worst, that penalty may require a balloon payment to cover the remaining outstanding payments. You can’t just return the leased car or sell it to pay off the leasing company. It’s not your car, and you have no equity in it.

Market conditions these days make it possible to negotiate with a dealership if you’re planning to buy a car. Or, because the used car supply is tight, dealerships may be more willing to make a deal to get you out of your lease early.

Brokers with auto lease transfer companies like swapalease.com can also attempt to connect you with a deal that lets you sign over the lease to someone else.

Before you make any choices, weigh all your options to determine the best option for you.

How Does My Credit Affect Car Leasing?

Credit score information for leasing

As with financing a car purchase, a leasing company will use your credit score and history to determine whether or not it will lease to you. Roughly 83% of new car leasing during the first three months of 2021 was to borrowers with a credit score above 660. This is according to the national credit bureau Experian. It also found that the average credit score for leasing during that period was 734.

If your credit score is 501 to 660, you may be able to find a lender willing to lease to you, but expect to put down a hefty down payment. Also, you can expect to be tagged with a higher-than-average interest rate.

It has always been true that leasing generally requires better credit than financing. When leasing, you have little or no skin in the game. All you stand to lose if you stop making your lease payments is whatever down payment you made.

You don’t now and never will have any equity in a leased vehicle. You are really renting it, remember? Leasing companies know you have little to lose. Consequently, they tend to be pickier when evaluating lessees rather than buyers.

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Car Leasing vs. Buying

Whether you lease or buy and finance your next car, you will be obligated to make a monthly payment. In most cases, both will also require some amount of money upfront. When financing, it’s usually a down payment of some sort.

With leasing, you may have to put up a security deposit, the first month’s lease payment, a fee for arranging the lease (acquisition fee), a down payment, or some combination of those. In either case, there are also car title and registration fees.

Pros of Leasing

Because you are only paying for the estimated depreciation while driving the car and not the entire purchase price, monthly leasing payments tend to be lower than financing payments. It simply means your money will go farther leasing a car than financing one. A lower monthly payment is the top reason people give for leasing. It isn’t the best reason, but it is the most common.

Another perk of leasing is the freedom to drive a new car every two or three years with no strings attached. A side benefit of having a new car every few years is, you probably will always have a vehicle protected by the factory new car warranty. There may even be a free maintenance warranty for a portion, if not all, of the lease. And, every couple of years, you can have a car with the most up-to-date technological advances.

At lease end, you don’t need to worry about the hassle of selling the car or negotiating its value as a trade-in. You drop the keys on the lessor’s desk and walk away.

Leasing is better geared to writing off the cost of driving on your taxes if you can deduct business expenses.

Here’s some excellent news: If you still like the car at the end of the lease, you can buy it. Because the leasing company estimated what the car would be worth at the end of the lease (the residual value or residual), they may have guessed wrong.

If they underestimated the car’s worth at the end of the lease, you could cash in by buying that car for less than the current market value. It’s the smart thing to do in a tight market when supply struggles to meet demand.

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Cons of Leasing

Yes, the idea of driving a new car every few years with the benefit of always being under warranty is tempting, as is that lower monthly payment. Sadly, though, it means you will never build any equity. What you pay for with a lease is the depreciation. A car will lose roughly 35% to 40% of its value in the first three years. At the end of the lease, you won’t have a thing to show for those two or three years of payments.

Typically consumers sign a closed-end lease. There are also open-end leases. The difference is discussed in What Are the Types of Leases? in the section below. Closed-end is the type of lease covered here.

Driving a leased car is like counting calories to lose weight — every mile driven counts. Every lease comes with a mileage limit. It may average out as low as 10,000 miles per year, although 12,000 miles is more likely. You may be able to find a lease with a yearly cap of 15,000 miles. There are even some more expensive high-mileage leases on the market.

You’ll pay more per month but may avoid getting slapped with a mileage penalty at the end of the lease. That penalty is usually about $0.25 per excess mile. If you do a lot of driving, that can really add up.

The leasing company will hold you accountable for anything beyond its definition of normal wear and tear. You will be on the hook for any repairs the lessor deems over and above normal. Suddenly, with the excess mileage fee and damage fee, returning that leased car isn’t the easy-peasy experience expected.

Leasing is also like joining a street gang. Once you’re in, you’re in. Suppose some change in your life creates the need to get out of the lease early? Good luck. You may find yourself faced with owing a balloon payment equal to the outstanding payments on the lease. At the very least, you will have to pay some sort of stiff penalty. There are online companies like swapalease.com, brokering deals between people who want out of a lease and people willing to pick up a lease. But, such brokered deals will cost you, too.

Pros of Buying

The top advantage to buying versus leasing is that the vehicle is yours when the loan is paid off in five or six years. There will be the value you can cash in by selling or trading it in as a down payment on another car. It’s an asset. Of course, you can always decide to drive it until the wheels fall off. No payments for another five years or more is a pretty good perk. Especially when you consider by year four, the repeat lessee is paying for the depreciation on a second new car and still gaining zero equity.

Getting out from under your car loan is much easier than breaking a lease. As long as the lienholder is paid off, you can sell or trade in your car at any time.

Cons of Buying

Particularly if your credit is a bit sketchy, you may want to put down a larger down payment of around 20% if you want better odds of getting approved. That would be $5,000 on a $25,000 car. Leasing would allow you to keep at least some of that up-front cash.

Depending on the length of the loan, depreciation, and the way interest is calculated, you may owe more than the vehicle is worth until the last year or so of the loan. By that time, the car warranty may well have expired, too. Not only do you have to continue making payments on a 5- or 6-year-old car, but you may have to pay for any repairs out of your own pocket.

The Differences of Leasing a Car vs. Buying a Car

You can draw some fairly strong contrasts between leasing and financing. Both have advantages and disadvantages. Short term, a lease will cost less. In the long run, however, two leases will cost more than buying one car. And, at the end of five or six years, the loan will be paid off, and whatever value the car retains will be yours.

Here are some other stark differences.

Leasing

  1. Monthly payments: Leasing payments are almost always lower than financing payments on the same vehicle.
  2. Early Termination: You will pay a hefty fee if you want to end a lease early.
  3. End of term: Although you may owe some penalties, you can just hand the car back to the lessor at the end of the lease.
  4. Mileage: A lease restricts the annual mileage. Exceeding that mileage will cost you big.
  5. After-market: A leased vehicle is not yours to do with as you wish. Any alteration will cost you.
  6. Taxes: Leasing a vehicle allows you to write off the monthly payments as a business expense if you’re eligible.
  7. Warranty: Most leased vehicles come with a warranty that will likely cover your car for the duration of the leasing period, saving you money should something happen to it.

Buying

  1. Monthly payments: For the same vehicle, financing payments will almost always be more than leasing.
  2. Early Termination: You can sell or trade in a financed vehicle at any time, as long as you satisfy the loan balance.
  3. End of term: When the loan is paid off, the car is yours to keep, sell, or trade in.
  4. Mileage: There are no mileage limits with a financed car.
  5. After-market: Financing a car allows you to make it yours. Take care not to void the warranty. Otherwise, customize it to your heart’s content.
  6. Credit: If you have bad credit, you will most likely have to put down a bigger down payment to get approved.

What Are the Types of Leases?

Leases aren’t one size fits all. The leasing concept doesn’t vary, but the contract details do.

What is a Closed-End Lease?

A closed-end lease is the most common form of leasing. Sometimes called a “walk-away” lease, it sets firm terms, allowing the lessee to walk away at the end of the lease. All variables like the length of the lease, monthly payments, and the mileage cap are established in the leasing contract. As long as the contract terms get met, the lessee can just drop off the car at the end of the lease. The lessee also has an option to buy the vehicle at a pre-determined value.

What is an Open-End Lease?

An open-end lease is a bigger gamble for the lessee, who is accepting more of the risk. Typically that lessee is a commercial enterprise or business. The leasing company still sets a residual value and the monthly payments. Luckily, open-ended leases usually have more flexible mileage options than their closed-ended lease counterparts. However, unlike a closed-end lease, it’s the lessee taking the hit if the residual value at the end of the lease is less than the vehicle’s actual market value. The lessee must pay the difference.

What is a Single-Pay Lease?

Also called a one-pay lease, this is a lease in which you pay the entire run of monthly payments upfront. There are two primary reasons for going this route. One, it usually reduces the interest or money factor rate. You wind up paying hundreds less than if you were to pay monthly. Two, if your credit is questionable, a single, up-front payment may motivate a leasing company to take a chance on you.

How Long is a Car Lease?

You may find carmakers offering leasing specials of odd durations, 39 months, for instance. But, generally, leases are for 24 or 36 months. You can, however, find leases out there for longer terms. As with financing, the longer the term of the lease, the lower the monthly payment. That difference, though, may not be much.

What is a Leasing Mileage Cap?

Even when you finance a car, the higher the mileage when you sell it or trade it in, the less it’s worth. The difference with leasing, the lessor factors in a specific number of miles when estimating depreciation. Over the course of a lease, the allowable mileage or mileage cap might average out to 10,000, 12,000, or 15,000 miles per year. Exceeding the mileage cap reduces the car’s value at the end of the lease. This is why a leasing company will charge you a predetermined penalty for each mile over the cap. Be sure you know the per-mile penalty before signing the lease.

Can a Car Lease Be Extended?

Say you haven’t found a replacement vehicle, and you are at the end of your lease. Is there a way out? Yes, most lessors will gladly extend the lease on a month-to-month basis or for a fixed number of months. You will have to continue making the monthly payment. Also, in the case of a multi-month extension, you may have to sign another contract.

What Are the Key Leasing Terms I Need to Know?

We have been using some reader-friendly shorthand in this guide, but here are the formal leasing terms you should understand.

  • Acquisition Fee: This is a fee a lessor charges for setting up the lease. This fee varies greatly and can be as much as $1,000. Ask before signing any lease what fees get included in the acquisition fee. Fees you might see could include destination charges and documentation fees for processing the lease title, license plates, and car registration. It is firm and can’t be negotiated away. However, it can be folded into monthly payments.
  • Allowable Mileage: Also called the “mileage cap,” it is the average number of miles per year you can drive the car. The lessor will penalize you for every mile above that number.
  • Capitalized Cost: This is the agreed-on selling price of the vehicle plus any fees to be included in the monthly payments.
  • Capitalized Cost Reduction: Also called cap reduction, it is any element lowering the capitalized cost. It usually takes the form of a down payment or trade-in allowance.
  • Depreciation: The lost value of the vehicle over the course of the lease is the depreciation.
  • Disposition Charge: This is a charge to clean and dispose of your car at the end of the lease. You may be able to negotiate it away if you buy the car or lease another from the same agency.
  • Drive-Off Fees: Any fees and deposits due to begin the lease. Don’t forget that sales tax will be due for your lease transaction. Ask the lessor what fees are included in the drive-off fees. You may be able to negotiate some of the lessor’s tacked-on fees.
  • Early Termination: Breaking a lease contract before the end of the leasing period. If you want out of your lease early, it will cost you dearly. You may need to come up with a sum of money equal to the remaining payments.
  • Gap Insurance: Some leases automatically include gap insurance in the capitalized cost. If the car is a total loss through theft or collision, your insurance may not cover the entire loss. Gap insurance pays for what your car insurance doesn’t pay.
  • Lessee: The party leasing the car.
  • Lessor: The entity financing the lease. It could be a bank, credit union, or a carmaker’s financial division.
  • Money Factor: In financing, this is called the interest rate, but it looks markedly different. As with financing, though, the higher the money factor, the larger the monthly payment.
  • Payoff Amount: This is what it will cost you to buy the car at the end of the lease. It should be roughly the residual amount minus any security deposit.
  • Term: The length of the lease.

Is it Possible to Lease a Car for One Year?

It is possible to lease a car for one year. But, why would you? A car depreciates as much as 30% by the end of the first year. Because your monthly payment is based on depreciation, that one year will be wildly expensive. You might do better with a long-term rental car. It’s worth checking out. Another idea you could try is a club. These are offered by luxury car club leasing companies and sometimes by manufacturers. The clubs allow members to drive new models for short periods of time. They usually include insurance and don’t require a long-term contract.

Can I Lease a Used Car?

Yes, you can lease a used car. In fact, most dealerships offer leasing incentives on their certified pre-owned (CPO) vehicles. These are gently used, newer model cars with factory warranties and other CPO benefits.

How to Lease Your Car

For the most part, the process of shopping for a leased car is about the same as shopping for a vehicle you plan to buy. Research is the key. Other steps to take include:

  1. Check your credit score. A credit score under 600 will be a very tough sell. When your credit score is low, the down payment is typically larger to get approved. The higher your credit score, the lower the money factor.
  2. Crunch the numbers. Figure out how much cash you can pay upfront. Some deposits and fees must be paid when you sign a lease, and many are not negotiable. The lessor may also demand a down payment.
  3. Determine the average annual mileage you drive. Your lease will have an average annual mileage cap of 10,000 to 15,000 miles. Be realistic about your driving habits. You will pay a penalty for every mile over the cap.

What to Look For in a Vehicle to Lease?

Find a model that retains its value. Some brands of vehicles simply retain more value as they grow older. Brands like Subaru, Lexus, Jeep, and Ram tend to retain much of their value through the years. When you buy a vehicle, value retention is important, but not until you sell it or trade it in. Value retention in a leased vehicle is important because the more value a leased vehicle is expected to retain, the lower the monthly payment.

What Questions to Ask Before Signing a Car Lease?

Here’s a list of questions to consider asking the dealership or other lessor before you leap.

  1. What is the residual value for the car I’m leasing?
  2. Once the lease ends, what is the price I can buy the car for?
  3. What is the money factor? If you don’t want to do the math, ask for it in percentage form.
  4. What is the monthly payment grace period?
  5. What is the delinquent fee for late payment?
  6. Will I be charged any other fees at the end of the lease?
  7. What are the penalties for early lease termination?
  8. What is normal wear and tear?
  9. How much do you charge per extra mile driven?

How Can I Reduce a Monthly Lease Payment?

  • Reduce the capital cost by negotiating a lower vehicle purchase price.
  • Ask for a lower money factor. Particularly if your credit score is over 750, go for a lower rate.
  • Put additional money down or, if there’s a trade-in, negotiate for a higher trade-in value.
  • Shop other dealers for a better deal.

What Are the Negotiating Points in a Lease?

  • The vehicle purchase price is framed as the capital cost.
  • The down payment.
  • The trade-in value.
  • The money factor.
  • The disposition fee.

What Can’t You Negotiate in a Lease?

  • Residual value is generally set in stone. You can give it a try, but don’t expect much.
  • Acquisition fee. This is a charge that lessors rarely budge on.

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