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10 Unsecured Credit Cards After Bankruptcy (2020)



Bankruptcy is a fact of life in today’s economy — but there’s life after bankruptcy — as witnessed by this review of 10 unsecured credit cards after bankruptcy for consumers who lack good credit.

All these cards accept applicants with a low credit rating and do not require you to put down a security deposit to open a credit card account.

All of the cards below are an acceptable choice for folks who once experienced bankruptcy and now seek new credit. All offer modest credit limits but differ in the fees they charge.

Pay close attention to one-time and recurring fees as well as the interest rate and other APRs. Unless you see a unique feature that you need, we recommend you choose the card that costs the least to get and to own.

  • 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.




$0 – $99


The Indigo® Unsecured Mastercard® – Prior Bankruptcy is Okay markets to consumers who want to rebuild their credit, even after a prior bankruptcy. You can prequalify for this card without hurting your credit score.

You must be at least 18 years old, with a physical and U.S. IP address, a valid Social Security number, and no history of owning an Indigo® Unsecured Mastercard that was charged off because of delinquency. You also must meet additional underwriting criteria, including a review of your debt and income.




  • 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


25.90% – 29.99%

See website for Details

Bad, Poor Credit

The Surge Mastercard® invites consumers with previous credit problems to apply. You can prequalify by submitting information about your checking account, monthly income, and whether you foresee taking cash advances. You’ll also have to supply your Social Security number.

Fees are about average for this type of card and consist of an annual fee and fees for cash advances, foreign transactions, and additional cards. A monthly maintenance fee is waived during the first year. You can get a higher credit limit by paying your bill on time for the first six months. The card provides $0 fraud liability.




  • 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




$35 – $99

Bad, Poor Credit

When you attempt to prequalify for a Milestone® Mastercard® – Less Than Perfect Credit Considered, you’ll actually be considered for several variations of the card that differ in certain fee amounts. With a prior bankruptcy, you’ll probably be considered for the “Gold-X” variety, which packs the highest annual fee.

You’ll also face fees for cash advances, foreign transactions, late payments, over-limit spending, and returned payments. However, there are no application fees nor monthly maintenance charges. You cannot qualify if you’ve ever had a Milestone® Mastercard® charged off due to delinquency.




  • 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



See Terms

See Terms

Fair, Bad Credit

On the plus side, the Total Visa® Card welcomes folks with bad credit. Moreover, you can choose a card design from a set of six.

However, you’ll have to pay a one-time program fee, a yearly fee, and starting in year two, a monthly servicing fee and a cash advance fee. There are also fees for late or returned payments, the credit limit is low, and the APR is higher than average for this group.




  • Pre-qualify for a card today and it will not impact your credit score
  • Less than perfect credit is okay
  • Mobile account access at any time
  • Fraud protection for stolen or lost cards
  • Account history is reported to the three major credit bureaus in the U.S.




$0 – $99

Bad, Poor Credit

The Indigo® Mastercard® for Less than Perfect Credit is part of a trio of platinum cards from Celtic Bank. Folks with prior bankruptcies or very poor credit will probably be offered the Plat-18 version, which has the highest yearly fee and charges several penalty fees, foreign transaction fees, and a cash advance fee that is waived for the first year.

The APR is about average for this group and the initial credit limit is low, especially after you net out the annual fee that is assessed before you begin using the card.




  • Checking Account Required
  • Reporting monthly to all three major credit reporting agencies
  • Perfect credit not required for approval; we may approve you when others won’t
  • Easy and secure online application
  • $300 credit limit (subject to available credit)
  • The First Access Visa Card is issued by The Bank of Missouri pursuant to a license from Visa U.S.A. Inc.



See Terms

See Terms

Bad Credit

The First Access Visa® Card is available in six designs. The card charges the typical fees for this category, including an initial program fee, penalty fees, and an annual fee. Starting in the second year are fees for credit line increases, cash advances, and monthly servicing.

The APR is on the high side, but the card is easier to get than are some of the other cards in this group.




  • Easy application! Get a credit decision in seconds.
  • Build your credit history – Fingerhut reports to all 3 major credit bureaus
  • Use your line of credit to shop thousands of items from great brands like Samsung, KitchenAid, and DeWalt
  • Not an access card



See Issuers Website


Poor Credit

The Fingerhut Credit Account lets you charge purchases when you shop at the Fingerhut online store or at one of its affiliates. This card charges no annual fee and will occasionally offer special repayment terms.

As with most store cards, this one is easy to obtain. If you don’t qualify, you may be offered Fingerhut’s Fresh Start Installment Loan. Once repaid, Fingerhut may then offer you the credit account.




  • Seeing if you Pre-Qualify is fast, easy, and secure
  • Get 1% cash back rewards on eligible purchase, terms apply
  • Rewards post automatically to your account each month
  • Automatic reviews for credit line increase opportunities
  • With $0 Fraud Liability, you won’t be responsible for unauthorized charges
  • Pick a card that fits your style. Multiple card designs are available, a fee may apply



17.99% to 23.99% Variable

$0 – $99


The Credit One Bank® Unsecured Visa® with Cash Back Rewards lets you earn cash back rewards on eligible gas and grocery purchases as well as on internet, phone, satellite TV, and cable services. Better yet, you’ll earn extra rewards when you purchase from a participating merchant.

The APR is relatively low for this group, and the annual fee is modest. Other fees are assessed for cash advances, foreign transactions, returned payments, and late payments.




  • See if you Pre-Qualify in less than 60 seconds—without affecting your credit score. It’s fast, easy, and secure.
  • Get 1% cash back rewards on eligible purchases including gas, groceries, and services such as mobile phone, internet, cable and satellite TV. Terms apply.
  • This is a fully functional, unsecured credit card—not a debit card, prepaid card, or secured credit card with deposit requirements.
  • Credit One Bank evaluates every account for credit line increase opportunities. We’ll let you know as soon as you’re eligible for a higher credit line.
  • Take advantage of free online access to your Experian credit score and credit report summary so you can track the key factors impacting your credit health. Terms apply.
  • Zero Fraud Liability protects you if your card is ever lost or stolen. Rest easy knowing you won’t be held responsible for unauthorized charges.



17.99% to 23.99% Variable

$0 – $99

Poor Credit

The Credit One Bank® Visa® with Free Credit Score Access is a good choice if you want to monitor your Experian score. Note that this is a ScoreX score, rather than the industry-standard FICO score. Therefore, you should use the score for your own non-commercial, personal educational review.

You can conveniently manage your card account on your tablet or phone using the Credit One Bank mobile app. You can also customize your transaction notifications and fraud alerts delivered via email or text.




  • Find out if you Pre-Qualify without harming your credit score
  • Eligible purchases earn 1% cash back rewards automatically, terms apply
  • Get a credit line between $300 and $3,000 based on your credit history
  • Accounts are automatically reviewed for credit line increase opportunities
  • Choose your monthly payment due date for added convenience, terms apply
  • With $0 Fraud Liability, you won’t be responsible for unauthorized charges



17.99% to 23.99% Variable

$0 – $99


The Credit One Bank® Unsecured Visa® for Rebuilding Credit welcomes consumers who have had credit trouble in the past. It offers cash back rewards for purchases at grocery stores and gas stations, as well as your phone, cable, internet, and satellite TV providers.

The annual fee varies with your creditworthiness, but the fees for cash advances, foreign transactions, late payments, and return payments are fixed. There is also a card fee if you add an authorized user.

Bankruptcy is a tool to protect your assets against creditors while you and the state court work out new arrangements. Depending on the type of bankruptcy, you may be relieved of your debts, or you may agree to a partial restitution plan.

Here are the answers to some questions regarding credit cards after bankruptcy.

What is an Unsecured Credit Card for After Bankruptcy?

An unsecured credit card, like an unsecured loan or personal loan, is backed by your general assets rather than a cash deposit. If you’ve experienced a bankruptcy in the past, you may find it difficult to obtain an unsecured credit card right away.

The cards in this review have been selected because they may approve your application even after a bankruptcy, but approval is by no means guaranteed.

However, time heals all wounds. While a bankruptcy will linger on your credit report for seven years or longer, its impact on your credit score will begin to diminish after the first couple of years. In other words, it pays to be patient when applying for a credit card after your bankruptcy, during which time you can improve your prospects by paying your bills on time and reducing your credit card debt.

The credit cards in this review share several characteristics. All may approve your request for a post-bankruptcy credit card, but it depends on the specific circumstances. Things these cards have in common include:

  • Relaxed standards: These cards are willing to approve applicants that others reject. They provide a valuable alternative to secured cards for those who have a poor credit history and prior bankruptcies. These issuers give consumers the opportunity to have Mastercard and Visa credit cards without having to put up collateral to secure the credit line.
  • Annual fees: While some of the cards show a range of annual charges as low as $0, consumers who have undergone bankruptcy will probably pay the maximum annual fees charged, which is typically around $99.
  • Plenty of fees: The issuers of these cards charge a myriad of fees. The reason is simple: You are considered a credit risk, and they would like to collect some money from you to reduce the impact of that risk. In addition to annual fees, some cards charge you an initial one-time program fee (typically less than $100). You can expect stiff penalties (typically $40) for misdemeanors such as late payments, returned payments, and spending over the credit limit. The least desirable cards also charge a monthly maintenance fee starting in the second year. All fees are included in each card’s standard credit card disclosure.
  • High APRs: The purchase annual percentage rates on these cards seldom fall below 20% and several exceed 30%. Cash advances, if available, may have a separate, higher interest rate.
  • Few benefits: Only a few of the cards in this review offer cash back rewards. Most of the cards offer paltry benefits, such as the choice of a card design. The better cards offer benefits that may include free credit scores, $0 balance transfers, customizable activity alerts, $0 fraud liability, and letting you choose the monthly payment due date.

All of these cards report your payments to at least one credit bureau — Experian, TransUnion, or Equifax — but most report to all three. This gives you the opportunity to raise your credit score by paying on time and keeping your credit card debt to a minimum.

How Do I Get an Unsecured Card After Bankruptcy?

Most of these cards offer a prequalification step before you formally apply for the card. The good thing is that it won’t hurt your credit score.

In a prequalification process, the credit card company makes a soft pull of your credit information from any of the three credit bureaus. A soft pull is an inquiry about your credit history that will not count against you.

When you apply for a card after passing the prequalification step, the credit card company does a hard pull, which can temporarily reduce your credit score. Too many hard pulls in a short time period can hurt your score further.

Hard Credit Inquiry vs. Soft Credit Inquiry

The prequalification step requires you submit basic information about yourself, your income, your Social Security number, and other data. You must be at least 18 years old and not have certain derogatory marks, such as previously defaulting on the card for which you are applying.

The card application will consist of further questions about your living arrangements, your job, existing unsecured debt, credit utilization, and other nosy items. Typically, the harder step is to prequalify, but not all prequalified applicants are approved.

While the cards in this review will not necessarily reject your application because of an old bankruptcy, they probably will say no if you are currently undergoing bankruptcy proceedings.

Many of the cards also limit how frequently you can apply. For example, some reject multiple applications within a set period, such as six months. Other reasons for rejection include having a delinquent credit account, being underage, and not being a U.S. citizen or resident.

What is the Difference Between an Unsecured and a Secured Credit Card?

A secured loan requires collateral. To obtain a secured credit card, you must make a cash deposit into an account controlled by the card issuer. The deposit covers the secured debt and is usually greater than or equal to a card’s credit limit.

Contrast this to unsecured credit cards, which require no upfront deposit and are considered lower-priority debt.

Secured credit cards can make a lot of sense for folks with poor credit and/or prior bankruptcies. While it’s true that you must secure your credit limit with a cash deposit, the credit limit is for a revolving account.

That means you can, over time, spend much more than the credit limit/security deposit because you have to make repayments to the card each month. In effect, you can use the same security deposit over time to secure purchases far in excess of the credit limit.

Unsecured vs. Secured Credit Cards

A secured credit card differs from its unsecured cousins in other ways as well. You’ll find most secured cards have lower APRs and fees than do similar unsecured cards. In fact, most secured cards charge no annual fee, which is remarkable for cards aimed at consumers with poor or no credit.

Also, some secured cards offer more generous benefits than do equivalent unsecured cards. A good example of a secured card with generous benefits is the Capital One® Secured Mastercard that’s aimed at consumers with bad credit.

Another alternative to an unsecured card is a credit builder loan for bad credit consumers, in which the loan proceeds are locked in an account until repaid. You build your credit rating by repaying on time.

One thing both card types offer is to report your payment activity to one major credit bureau or more. By doing so, the cards give you the opportunity to boost your credit score by making your payments on time.

A secured card may reward consistent on-time payment by eventually refunding your deposit, making the card unsecured. Unsecured cards may reward good financial behavior by offering higher credit limits, although some may charge a fee for doing so.

What Will My Credit Limit Be?

Typically, the credit line on these cards is well below $1,000 and often start at $300 (minus the annual fee). Some of the cards automatically offer you a higher limit after you’ve exhibited creditworthy behavior.

For example, you may have to make your first six payments on time to qualify for a higher limit. Some cards charge a fee for a limit boost, usually equal to a percentage of the increase.

Average Credit Card Limits by Score

Often, the annual fee is subtracted from the initial credit limit. For example, if your annual fee is $75 and your limit is $300, then your initial limit will be $225. Once you pay the fee, your available credit will resume at $300.

If it’s important to you to have a higher credit limit, consider getting a secured card instead. Many secured cards let you choose a higher limit, maybe as high as $2,500, by depositing a larger amount. Whatever your current limit, you will probably be able to raise it as you build credit through creditworthy behavior.

Can I Get an Unsecured Card for After Bankruptcy with No Annual Fee?

Some of the cards in this review offer a range of annual fees that start at $0. However, a past bankruptcy may put a no-annual-fee card out of reach. While it’s not impossible to get a no-annual-fee card despite a prior bankruptcy, unusual conditions would have to prevail.

Naturally, bankruptcies that are old enough to have been removed from your credit reports can no longer hurt your ability as a debtor to get a credit card without an annual fee. It takes seven years for a Chapter 13 bankruptcy to roll off your credit report, but it takes a full 10 years before a Chapter 7 bankruptcy disappears.

Chart Showing Negative Account Credit Report Lifespan

This is due to the differences between the two bankruptcy chapters. Chapter 13 involves a structured repayment plan to pay back some debt to unsecured creditors, and therefore is considered less damaging than Chapter 7 bankruptcy discharge, where your debts are completely forgiven by each creditor.

If your bankruptcy is still on your credit report but is due to come down soon, you may be able to find an unsecured card that will give you a $0 annual fee. For this to happen, you would have had to work hard during the intervening period to improve your credit. In other words, by compiling a history of creditworthy behavior over the last five or more years, you may be deemed eligible for a no-annual-fee card, or at least a low-fee card, despite an old bankruptcy.

Will I Need a Checking or Savings Account to Open a Card?

In most cases, you will need a bank or credit union account to get a credit card. While some cards are marketed to unbanked individuals, you’ll get the most convenience from your credit card if you also have a checking or savings account. The chief benefit of a bank account is the ability to make credit card payments directly through transfers or checks, rather than paying in person at bank branches or other locations.

Bank accounts also come in handy when you need a cash advance from your credit card because you can have the advance deposited directly into your bank account. This avoids having to handle cash or using an ATM.

Fortunately, many banks offer low-cost checking accounts and free savings accounts. Some accounts waive monthly fees if you maintain a minimum balance.

Digital banks and credit unions are especially good venues for low-cost checking accounts. Moreover, a low credit score or a prior bankruptcy won’t interfere with your ability to open a checking or savings account.

Banks vs Credit Unions

It’s often convenient to open a checking or savings account at the bank issuing the credit card you own (or want to own). Banks may offer special deals when they bundle a credit card with a checking or savings account. Using the same bank or credit union for your card and your checking account may make it easier to set up automatic monthly credit card payments from your checking account to handle minimum amounts due.

If you choose to open just a savings account, be aware of certain limitations that may apply to the account, such as a maximum number of withdrawals per month. However, the Federal Reserve recently lifted the cap on withdrawals from savings accounts.

Before choosing a savings account, be sure to compare APRs that can vary widely. Some of the best savings rates are offered by virtual banks, such as Radius Bank, that have no brick-and-mortar branches. Look for a bank advertiser offering the highest national rates.

A good reason to own both a savings and checking account is that you can use the savings account as a backstop against overdrafts in the checking account. Just ask your bank to automatically transfer from savings to checking the funds necessary to cover an overdraft.

This timely payment will save you fees and embarrassment. You may also get an automatic sweep feature on your checking account that moves excess funds to the companion savings account.

Similarly, you can have the bank that issued your credit card and checking account use the account to cover overdrafts on your credit card. These occur when you attempt to spend beyond your card’s credit limit. In an overdraft agreement, money from your bank account will automatically pay down your card balance to avoid the overdraft.

The 10 unsecured credit cards after bankruptcy we reviewed here offer consumers with a sketchy credit history a chance to get a credit card without putting down a security deposit. These cards often have high fees and APRs, but they do give you the opportunity to raise your credit score when you pay your bills on time, helping you on your path to good credit.

Consider these cards as a step in your campaign to recover your credit score after the damage inflicted by a bankruptcy filing.

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Red-hot market: Tips for first-time homebuyers 



With Long Island’s housing market sizzling hot, the process of buying a new home can seem like a daunting one. It doesn’t have to be.

To help first-time homebuyers chart the waters of buying in this market, Newsday Live hosted a question-and-answer session Tuesday with local housing experts as part of its web series “Hot Tips for a Hot Market.”

The virtual session, moderated by Newsday anchor Faith Jesse and residential real estate reporter Maura McDermott, included Tricia Gleaton, vice president of the Homeownership Center at the Community Development Corp. of Long Island, and Quentin Hardy, branch leader with Movement Mortgage in Huntington.

Responses have been edited for length and clarity.

Where should buyers get started? And what first steps should they take?

Gleaton: For somebody who’s looking to buy a home for the first time, a great place to start is by seeking out homebuyer education and counseling. A lot of people aren’t aware they exist. And part of that process will be to help establish a budget, understand what’s affordable and what’s going to be [financially] comfortable long term … and then getting access to loan programs, down payment assistance and closing costs, and grants that are out there that may be leveraged in the home purchase.

Many first-time homebuyers don’t have the standard 20% down payment. What tip can you give them on saving up? And what options do buyers who don’t have 20% to buy their first home have?

Hardy: There are lots of options. I think the phrase “the standard 20%,” that’s not the standard. It’s sort of a myth and a belief that’s been propagated but I bought my first home back in the late 1990s with 3% down. Fannie Mae, Freddie Mac, FHA … there are lots of 3%, 3.5% down payment programs so you do not need 20% as a first-time homebuyer. There are lots of low down payment options buyers should look into. I know for my first home, we had to sacrifice. I lived at my parents’ house as an adult, married with a child because that’s what we needed to do to save up to buy our first home.

Gleaton: Many lenders offer down payment and closing cost assistance as well as state [and municipal] grants. There are programs available where someone can rent with the plan that they’re moving forward with the purchase of the home. And there are unique programs. One of the programs CDC of Long Island offers may help [people who are] Housing Choice Voucher holders, commonly known as Section 8.

A lot of people have blemishes on their credit report. So what can people do if they have bad credit, but they still want to get a home?

Hardy: I think where we have to start is with that word bad. How bad is bad? You can have credit that’s so poor that you cannot get a home loan. But there are banks that will do loans at 580. There are situations where you can get loans as a first-time homebuyer even if you have bad credit. It can be low enough that you’ve got to work on the credit first, though it would probably be a great start to have a conversation with a professional about how bad bad is.

The market is hot right now. Should buyers try to wait it out in hopes that it’ll cool down?

Gleaton: It is a very competitive market right now but that hasn’t necessarily dampened people’s desires to become first-time homeowners. One of the things that we tell people is you don’t have to rush … it doesn’t necessarily mean you don’t want to continue your search. Continue to save, continue to work toward your purchase, but be patient recognizing that you want to make an informed decision that’s not emotional. Be careful with bidding wars. Take your time to do your search and research in a methodical way. Be patient. The right home is out there for you.

Hardy: The general rule is it’s not the timing of the market, it’s time in the market … so that now is a good time to buy.

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Car Leasing Guide: Everything You Need to Know



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 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.

RELATED STORY: Can I Buy a Car with Poor Credit History?

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.

RELATED STORY: How to Profit from an Off-lease Car

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, 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.


  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.


  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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