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Bad Credit

20 Credit Cards for Bad Credit (2020)

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Many consumers with low credit scores want to own credit cards for bad credit to help them manage their finances. Here are our top 20 picks representing the best balance between costs and benefits for consumers seeking the right credit card.

Use the links below to navigate to the card type you’re interested in:

Unsecured | Secured | Business | Store | Prepaid
How to Apply | FAQs

An unsecured credit card is what most people think of as a regular credit card. Most credit cards are unsecured, meaning you don’t have to put up any collateral to get an unsecured credit card.

As you can see, many unsecured cards are available to you, even if you have bad credit.

  • 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® is an unsecured credit card that is a great option for anyone with less-than-perfect credit. You’ll have to provide some personal information to prequalify, including your Social Security number, whether you have an active checking account, whether you intend to use the card for cash advances, and the amount and primary source of your monthly income.

This unsecured credit card provides $0 fraud liability protection and the potential for earning a credit limit increase when you make your first six monthly payments on time.

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 markets to consumers who have an imperfect credit rating. You can quickly enter information to prequalify for the card, and you’ll receive an approval decision within a minute.

Your credit rating determines your annual fee. You may select from a roster of five card designs for free. If Indigo can’t match you to one of its cards, it may recommend you apply to a selected credit card from another issuer.

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 makes the application process easy by allowing you to prequalify for this subprime credit card by entering just a few data items. Unlike some of its competitors, this card does not charge one-time or monthly fees, although you will be billed an annual fee that is based on your creditworthiness.

The card also waives the cash advance fee for the first year. You get ID theft and liability protection at no extra charge.

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 is the less-than-perfect credit card for consumers with less-than-perfect credit. To get and use this card, be prepared to pay a one-time program fee, an annual fee, and starting in year two, a monthly servicing fee, and a cash advance fee.

You may be offered a credit line boost after the first year, but, you guessed it, you’ll be charged a fee based on the increased amount. On the plus side, you can get this card even if you have really bad credit.

BAD CREDIT RATING

★★★★

4.4

  • 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.

N/A

N/A

24.9%

$0 – $99

Bad, Poor Credit

The Indigo® Mastercard® for Less than Perfect Credit is part of the Indigo® card trio available to consumers with bad credit. It’s not clear which one you’ll be offered until you prequalify and apply for the card.

The major difference distinguishing the three cards is how much you’ll pay in annual fees, which depends on your credit profile. The card charges no initial or monthly processing fees, and cash advances don’t trigger a fee during the first year.

BAD CREDIT RATING

★★★★

4.3

  • 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.

N/A

N/A

See Terms

See Terms

Bad Credit

You can apply for a First Access Visa® Card and receive a decision in a minute or less. But before you rush in, make sure you understand that you’ll pay an initial program fee and an annual fee, as well as cash advance, credit line increase, and monthly servicing fees after the first year.

You can select a card from a palette of six designs that includes a kitty cat, an American flag, and a sunflower.

BAD CREDIT RATING

★★★★

4.3

  • 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

N/A

N/A

17.99% to 23.99% Variable

$0 – $99

Poor

The Credit One Bank® Unsecured Visa® with Cash Back Rewards is the only card in this review that offers cash back rewards. The card lets you customize your notifications, reminders, and alerts.

It also gives you free online access to your Experian credit score and allows you to choose your monthly payment due date. An annual fee may apply, depending on your creditworthiness.

Secured credit cards require you to deposit cash into a locked account as collateral. In return, you can expect fees and rates lower than those for similar unsecured cards.

SECURED RATING

★★★★

4.0

  • No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
  • The refundable* deposit you provide becomes your credit line limit on your Visa card. Choose it yourself, from as low as $200.
  • Build credit quickly. OpenSky reports to all 3 major credit bureaus.
  • 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
  • We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search “OpenSky Card” in Facebook.)
  • OpenSky provides credit tips and a dedicated credit education page on our website to support you along the way.

N/A

N/A

17.39% (variable)

$35

Poor

The OpenSky® Secured Visa® Credit Card lets you choose your credit line by requiring a matching security deposit. Unlike some other secured credit cards, you don’t need to have a bank account to get this card. But don’t worry, your deposit will be FDIC-insured.

This card doesn’t subject you to a credit check, making it a great choice if you’ve got a really low credit score. This secured credit card charges a relatively low annual fee.

SECURED RATING

★★★★

3.9

  • Invest your tax refund to improve your credit by making the refundable deposit for your new secured card today
  • No Credit History or Minimum Credit Score Required for Approval
  • Monthly Reporting to all 3 Major Credit Bureaus to Establish Credit History
  • Credit Line Secured by Your Fully-Refundable Deposit of $200 — $2,000 Submitted with Application
  • Nationwide Program though not yet available in NY, IA, AR, or WI *See Card Terms.
  • Apply in just a few moments with no negative impact to your credit score; no credit inquiry will be recorded in your credit bureau file

N/A

N/A

9.99% (V)

$49

Bad / No Credit

Would you pay a few extra dollars in an annual fee to get the lowest APR and cash advance fee in this merry trio of First Progress cards? If the answer is yes, go for the First Progress Platinum Prestige MasterCard® Secured Credit Card.

If you regularly stretch out your payments over several months, the money you save on interest could easily dwarf the small increment of an annual fee. All three cards are easy to obtain, just fork over your security deposit, and you’re good to go.

SECURED RATING

★★★★

3.8

  • Invest your tax refund to improve your credit by making the refundable deposit for your new secured card today
  • Receive Your Card More Quickly with New Expedited Processing Option
  • No Credit History or Minimum Credit Score Required for Approval
  • Quick and Complete Online Application
  • Full-Feature Platinum MasterCard® Secured Credit Card
  • Nationwide Program though not yet available in NY, IA, AR, or WI *See Card Terms.

N/A

N/A

19.99% (V)

$29

Poor/Limited/No Credit

If every dollar you spend on annual fees pains you, choose The First Progress Platinum Elite MasterCard® Secured Credit Card from this trio of cards because it has the lowest annual fee among the lot. However, be prepared to pay the highest APR and cash advance fee in the group.

If you regularly pay off your balance and seldom take cash advances, this is the First Progress card that may suit you best.

SECURED RATING

★★★★

3.8

  • Invest your tax refund to improve your credit by making the refundable deposit for your new secured card today
  • Receive Your Card More Quickly with New Expedited Processing Option
  • No Credit History or Minimum Credit Score Required for Approval
  • Quick and Complete Online Application
  • Full-Feature Platinum Mastercard® Secured Credit Card
  • Good for Car Rental, Hotels; Anywhere Credit Cards Are Accepted!

N/A

N/A

13.99% (V)

$39

Poor/Limited/No Credit

If the First Progress trio of credit cards were the three bowls of porridge in front of Goldilocks, the First Progress Platinum Select MasterCard® Secured Credit Card would be the one that’s “just right.” That’s because its APR, cash advance fee, and annual fee are intermediate among those offered by the other two cards.

As with the other two, this card doesn’t check your credit score or history when you apply.

There is no reason why you can’t own a business credit card just because you have bad credit. The three business cards reviewed here are all secured, so don’t fret about those old credit problems.

SECURED RATING

★★★★

4.0

  • No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
  • The refundable* deposit you provide becomes your credit line limit on your Visa card. Choose it yourself, from as low as $200.
  • Build credit quickly. OpenSky reports to all 3 major credit bureaus.
  • 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
  • We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search “OpenSky Card” in Facebook.)
  • OpenSky provides credit tips and a dedicated credit education page on our website to support you along the way.

N/A

N/A

17.39% (variable)

$35

Poor

It takes only five minutes to negotiate the four-step application process for the OpenSky® Secured Visa® Credit Card. If you are new to the world of credit, you’ll be heartened to know that 99% of the holders of this card were able to build their credit scores within six months.

As a true Visa® card, you get several benefits, including fraud protection and worldwide acceptance.

13. Wells Fargo Business Secured Credit Card

Wells Fargo Business Secured Credit Card

The Wells Fargo Business Secured Credit Card allows you to establish a credit line of between $500 and $25,000 by depositing an equivalent security amount. The card offers cash back rewards and $0 liability protection while charging a relatively small annual fee.

You can get up to 10 employee cards for free and receive spending reports online. The card charges no foreign transaction fee.

14. BBVA Compass Business Secured Visa® Card

BBVA Secured Visa® Business Credit Card

The BBVA Compass Business Secured Visa® Card is available in Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas. You can get the card with a minimum opening deposit of $500, with 90% available as credit.

The annual fee is waived for the first year, and employee cards are free. You get online account services such as employee expense tracking, bills payment, downloadable past account statements, and integration with accounting software.

Store credit cards are among the easiest unsecured cards to obtain, even with poor credit. You can use them for purchases at the issuing store and its affiliates.

BAD CREDIT RATING

★★★★

4.3

  • 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

N/A

N/A

See Issuers Website

$0

Poor Credit

The Fingerhut Credit Account lets you charge purchases from the Fingerhut online marketplace. The account is a good way to build or rebuild your credit, as it reports your activity to the three major credit bureaus.

Even if you don’t qualify for the account, Fingerhut may approve you for its Fresh Start Installment Loan. The credit account charges no annual fee and frequently offers special promotions.

16. Amazon.com Store Card

Amazon.com Store Card

The Amazon.com Store Card lets you charge items when you shop online at Amazon.com. You must have an Amazon account to get this card. If you happen to be an Amazon Prime Member, you’ll also get 5% cash back on your orders.

However, you can substitute promotional financing for cash back on eligible purchases, thereby letting you avoid interest if you pay off the balance during the promotional period. The card charges no annual fee.

17. Target RedCard™

Target RedCard™

If you shop at Target, you really should own a Target RedCard™, as it saves you 5% on your in-store and online purchases (10% on your anniversary). You get free shipping on most online items, an additional 30 days to return items, and access to exclusive special offers.

And if you need a little pick-me-up while shopping, you can use your card at the in-store Starbucks and save 5%.

Prepaid credit cards are more like a replenishable debit card. You can spend as much money as you load onto the card at any place that accepts Visa (for Netspend) or Mastercard (for PayPal) debit cards.

BAD CREDIT RATING

★★★★★

4.6

  • With Netspend Direct Deposit, you can get paid faster than a paper check.
  • No late fees or interest charges because this is not a credit card.
  • No Overdraft Fees on purchases using your card.
  • Use the NetSpend Mobile App to manage your account on the go and get text message or email alerts (Message & data rates may apply).
  • Card issued by MetaBank®, Member FDIC. Card may be used everywhere Visa Debit cards are accepted. Click “Get My Card ” for full details.
  • See additional NetSpend® Prepaid Visa® details.

N/A

N/A

N/A

Up-to $9.95 monthly

Not applicable

The NetSpend® Visa® Prepaid Card likes to say no to its customers: No minimum balance, no credit check, no activation fee. And it says yes to nifty features like mobile check load, in which you take a few pictures on your cellphone to load checks onto your card.

You can customize your card with a family photo or other image, and you can receive Anytime Alerts™ for activity notifications.

BAD CREDIT RATING

★★★★

4.4

  • With Netspend Direct Deposit, you can get paid faster than a paper check.
  • No late fees or interest charges because this is not a credit card.
  • No Overdraft Fees on purchases using your card.
  • Use the NetSpend Mobile App to manage your account on the go and get text message or email alerts (Message & data rates may apply).
  • Card issued by MetaBank®, Member FDIC. Card may be used everywhere Visa Debit cards are accepted. Click “Get My Card” for full details.
  • See additional NetSpend® Prepaid Visa® details.

N/A

N/A

N/A

Variable Monthly Fee

Not applicable

This NetSpend® Visa® Prepaid Card offers the Pay-As-You-Go Plan, in which you pay a transaction fee for each purchase, or a flat-fee Monthly Plan. You can cut that monthly fee in half if the account receives at least $500 in direct deposits for at least one month.

Another available option is Purchase Cushion, which can give you up to $10 of overdraft protection.

BAD CREDIT RATING

★★★★

4.4

  • Move money from your PayPal account to fund your prepaid card account.
  • Earn cash back and personalized offers, just for using your card.
  • With Direct Deposit, you can get paid faster than a paper check.
  • Card issued by The Bancorp Bank, Member FDIC. Card may be used everywhere Debit Mastercard is accepted.
  • Click PayPal Prepaid Mastercard® for additional features & program details, and to request a Card.

N/A

N/A

N/A

Variable Monthly Fee

Not applicable

If you use PayPal to send and receive money, you’ll enjoy the convenience of transferring money to load your PayPal Prepaid Mastercard®. And speaking of convenience, you can reload your card at more than 130,000 locations in the U.S.

In addition, cardholders can open a free, no-minimum-balance savings account at Bancorp Bank. The card is available in red, blue, plum, or white.

If your credit is bad, you can assume that credit card issuers will be cautious when they receive your application. In fact, issuers of unsecured cards may ask you to prequalify first, which is a good deal for you because it doesn’t require a hard pull (i.e., an inquiry that can reduce your credit score) of your credit report, which occurs when you apply after prequalifying.

You’ll have to cough up some personal information when you ask for prequalification, including items like your income sources, how much you bring home each month, and other responses to nosy questions. The full application may go on to inquire about your housing costs and other debts. Some cards require a minimum credit score, others don’t.

If you are intent on getting an unsecured card rather than a secured one, expect to pay high fees and a high interest rate, while being restricted to a low credit limit (frequently $300 less any upfront fees).

Sometimes, you can improve your credit score just enough to allow you to qualify for an unsecured card. Here are some tips to boost your score quickly:

  • Check your credit reports for any errors. You can get a free credit report from each major credit bureau (Equifax, Experian, and TransUnion) at AnnualCreditReport.com. You can contact a credit bureau to request the removal of incorrect information that may be depressing your score. Or you can hire a credit repair company whose professionals scour your credit reports for errors.
  • Pay down any existing debts. The less you owe, the more capacity you have to take on new credit.
  • Pay your bills on time, unfailingly. A credit card company likes to see that you have a responsible attitude toward your debt.
  • Find a cosigner. A card issuer will like a cosigner, especially one who has good credit, because cosigners are on the hook if you miss payments.
  • Consider becoming an authorized user instead. As an authorized user of someone else’s card, you get to charge items without the primary obligation to repay. Of course, stiffing the card owner is a great way to ruin a relationship.

If it’s impossible to qualify for an unsecured card, consider a secured or prepaid one. The card issuer for these types of cards requires upfront cash but generally charges less in fees and interest. Best of all, the credit card company issuing this card doesn’t check your credit.

You have questions, we have answers. With a name like CardRates.com, we keep our fingers on the pulse of the market for all types of credit cards.

What is a Credit Card for Bad Credit?

A credit card for bad credit is one geared toward folks with a bad credit score looking to build credit. According to Experian, FICO scores (which run between 300 and 850) below 670 are “bad.”

This range consists of “fair” (580 – 669) and “poor” (300 -579) scores. If you have a low credit score that is in this range, you’ve experienced some financial problems in the past.

FICO Score® Ranges

The unsecured cards reviewed here understand that your creditworthiness is in question. Nonetheless, they are willing to accept many consumers with bad credit, albeit at a steep price.

Look for these cards to impose several substantial fees, although they may waive some fees for the first year. Additionally, credit lines on these cards are tight, often $300 minus any upfront fees.

Alternatively, you may want to start with a store credit card. These unsecured cards are easy to get and seldom charge fees. They are a good way to build credit if you don’t have any, or to start repairing a bad credit score. Unfortunately, their range is limited to shopping at the issuing stores and their affiliates.

Naturally, the best way to reduce the cost of credit is to raise your credit score. But until you can do so, you may want to consider a secured or prepaid credit card, as these don’t care about your financial history.

However, bear in mind that a prepaid card isn’t building credit because it does not report to the credit bureaus.

What Credit Score Do I Need to Get a Credit Card?

Strictly speaking, there is no minimum credit score required to obtain a credit card, but low scores drastically reduce the number of cards eligible to you. Secured and prepaid cards don’t check credit scores, so they are available to anyone with the money for a cash deposit.

However, prepaid cards won’t build your credit score, whereas secured cards are a great tool to establish or build credit. If you’re new to credit and don’t have a score yet, a secured card may be your best bet.

The gateway unsecured cards in this review, led by the top-rated Surge Mastercard® subprime card, allow you to prequalify before you apply, meaning that they will not do a hard credit pull unless you are considered eligible to apply.

In other words, you have nothing to lose by submitting the prequalification questionnaire, even if your score is 300. You’ll find with these cards that sometimes a verifiable income outweighs a low score.

We call these cards “gateway” because they can get you started on the road to a higher credit score through their reporting to the three major credit bureaus (Experian, TransUnion, and Equifax). By paying on time, you can slowly climb Score Mountain and trade up to a less expensive, more rewarding credit card.

What is the Easiest Store Credit Card to Get?

All three of the reviewed store cards are easy to get, but the Fingerhut Credit Account is the easiest. This account provides a limited amount of credit to shop at a Fingerhut online store or affiliate.

BAD CREDIT RATING

★★★★

4.3

  • 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

N/A

N/A

See Issuers Website

$0

Poor Credit

Although the account doesn’t charge an annual fee, it can wallop you with hefty late and returned payment fees.

The account has a couple of provisions to help you qualify even with bad credit. The first is that Fingerhut may ask you for a down payment to qualify for the Credit Account.

Alternatively, Fingerhut may approve you for a FreshStart Installment Loan instead of the Credit Account. To get the loan, you must order at least $50 in goods and make a $30 down payment. You then make up to six monthly payments to retire your balance, after which you may graduate to the Credit Account.

Here’s a tip: Don’t pay off the installment loan right away. Fingerhut prefers to see at least one monthly payment to consider you for the Credit Account. Also, make sure you don’t make any late payments because that will derail your efforts to obtain the Credit Account.

If you are a fan of Amazon but you have bad credit, you may want to consider the secured Amazon.com Credit Builder Card. Like all Amazon credit cards, this one is issued by Synchrony Bank. Because it is a secured card, it is easier to obtain than is the Amazon.com Store Card.

The Credit Builder Card comes in both regular and Prime versions, both of which can serve as the gateway to the unsecured Amazon.com Store Card. In fact, Synchrony Bank will start considering you for an upgrade to an unsecured card as soon as seven months after you open a Credit Builder account.

To qualify for the upgrade, your credit score must be acceptable to the bank, you must pay your Amazon bill on time each month, and you must pay on time all your other bills during the period. The bank will also confirm that you haven’t had any recent collections, delinquencies, repossessions, bankruptcies, or foreclosures.

If you receive an upgrade to the Amazon.com Store Card, your security deposit will be refunded, and your new account number will be placed in your Amazon Wallet. Since the upgrade will not require a new hard pull of your credit history, your credit score will not suffer.

If you are already a Prime member or are considering becoming one, remember that you get 5% cash back on all your Amazon purchases made on the card.

Which Credit Cards Give You Instant Approval?

Virtually all the credit cards in this review will let you know your approval status online within minutes. However, only the prepaid cards provide guaranteed approval. That’s not surprising since you are depositing money with the issuer to cover your purchases.

The NetSpend® Visa® Prepaid Card rates highest among the prepaid cards, due to its flexible fee structure. You can pay as you go, which tacks on a small fee with each use of the card.

Alternatively, you can pay a fixed monthly charge for unlimited use of the card. Furthermore, arrange just one direct deposit of $500 or more to the card and your monthly fee will be sliced in half from that point forward.

BAD CREDIT RATING

★★★★★

4.6

  • With Netspend Direct Deposit, you can get paid faster than a paper check.
  • No late fees or interest charges because this is not a credit card.
  • No Overdraft Fees on purchases using your card.
  • Use the NetSpend Mobile App to manage your account on the go and get text message or email alerts (Message & data rates may apply).
  • Card issued by MetaBank®, Member FDIC. Card may be used everywhere Visa Debit cards are accepted. Click “Get My Card ” for full details.
  • See additional NetSpend® Prepaid Visa® details.

N/A

N/A

N/A

Up-to $9.95 monthly

Not applicable

The PayPal Prepaid Mastercard® is a good choice if you regularly use PayPal to transfer money. Many freelancers use PayPal to get paid for their work, and as the proportion of workers increasingly tips toward the self-employed, expect PayPal and its prepaid card to only gain in popularity.

BAD CREDIT RATING

★★★★

4.4

  • Move money from your PayPal account to fund your prepaid card account.
  • Earn cash back and personalized offers, just for using your card.
  • With Direct Deposit, you can get paid faster than a paper check.
  • Card issued by The Bancorp Bank, Member FDIC. Card may be used everywhere Debit Mastercard is accepted.
  • Click PayPal Prepaid Mastercard® for additional features & program details, and to request a Card.

N/A

N/A

N/A

Variable Monthly Fee

Not applicable

Prepaid cards offer some nice benefits. They look just like regular credit cards, don’t require you to have a bank account, and won’t ever hit you with an overdraft fee since you can only spend up to the card balance.

Secured credit cards are likely to provide instant approval, but you must wait until the issuer receives your security deposit before you are sent the card. And when you do receive approval, you’ll normally have to wait until the physical card shows up in your mailbox. That can keep you waiting a week or more.

If you’d like to start using the account sooner, you have a couple of options. For example, you can see whether the issuer will expedite shipping, either free or for a fee. That can cut your wait down to as little as overnight.

Another way to get shopping sooner is for the issuer to provide you with a virtual card number. This is a temporary number, unrelated to your actual card number, that you can use for online shopping as soon as you receive it.

Most cards will cancel the virtual number once you register the newly received credit card. However, you might find an issuer or third-party service, such as Privacy, that offers permanent virtual numbers.

With multiple virtual credit card numbers, you can limit each number to a particular merchant, time period, and/or spending limit. By doing so, you’ll limit the damage should a hacker steal the number.

Will I Need to Provide a Security Deposit?

Secured cards require a security deposit, while unsecured cards don’t. Typically, the size of the deposit is at least as much as the card’s credit limit, sometimes more, sometimes less.

The credit limit on our top pick, the OpenSky® Secured Visa® Credit Card, is equal to 100% of your security deposit. The deposit goes into a non-interest-bearing FDIC-insured account, where it remains until you close the account and repay the balance.

As with most secured cards, this one doesn’t subject you to a credit check or demand you have a bank account. The annual fee is relatively modest.

Don’t confuse a secured card with a prepaid card. With a secured card, your deposit isn’t touched unless you miss a payment, in which case the card issuer will subtract the required amount from your deposit. If you close the account, the issuer returns the deposit, minus any unpaid balance, to you.

Secured Credit Card vs Debit Card vs Prepaid Card

You must also put up-front money into a prepaid card, but that’s the money you spend when you make purchases with the card. You must replenish the prepaid card’s balance to continue using it.

What Will My Credit Limit Be?

The unsecured cards in this review typically start you off with a small, $300 credit limit. But most of them subtract any upfront fee first. The store credit cards also put tight limits on your credit limit, based on your creditworthiness.

Note that some unsecured cards will automatically evaluate your credit limit after the first year. But beware, the First Access Visa® Card is among those that charge a fee for the higher limit.

Your credit limit on secured cards is no more than the security deposit and may be less. For instance, the credit limit on your BBVA Compass Business Secured Visa® Card is but 90% of your security deposit.

There is no credit limit on a prepaid card because the card offers no credit. Your spending limit is set to the amount you deposit, up to the maximum amount allowed.

What is Credit Utilization?

Credit utilization refers to how much of the credit available to you that you use. The credit utilization ratio (CUR) is equal to the outstanding balance on your credit accounts divided by the sum of the credit limits on those accounts.

For example, if your total credit limit is $5,000 and you currently owe $2,000 solely in credit card debt, then your CUR is ($2,000 / $5,000), or 40%.

CUR is important for a couple of reasons:

  • A high CUR indicates to lenders that you may be in financial distress. That would make it harder for you to obtain additional credit.
  • Amounts owed, as measured by CUR, is one of the five factors that determine your FICO credit score. In fact, it is responsible for 30% of your score. Your score goes down when your CUR rises above a certain threshold (typically 30%).

If you are looking to access new credit or to increase your credit limit, you should first calculate your CUR. If the result is higher than 30%, pay down your balances before applying for the additional credit.

Can I Do a Balance Transfer If I Have Poor Credit?

A balance transfer allows you to perform a credit card consolidation encompassing the balances of several credit cards. Many cards offer this feature.

In fact, when you get a new card, you may be entitled to a promotional period of 0% interest on balance transfers (but a fee applies for each transfer, usually 3%).

However, credit cards targeted to consumers with poor credit generally do not offer balance transfers, much less 0% promotions. You might be able to simulate a partial balance transfer in the form of a cash advance. That is, you might be able to take a cash advance from Card A to pay off the balance on Card B, effectively transferring the balance from B to A.

How to Make a Cash Advance with a Credit Card

But for the bad credit unsecured cards in this review, cash advances are subject to strict limits.

For example, the Total Visa® Card only allows cash advances if your account has been open for three completed billing cycles, is not past due, and you have available credit for cash advances. The card further restricts your total advanced cash to no more than one-half of your current credit limit.

Debt consolidation through balance transfers allows you to reduce the number of credit card payments you make each month. This allows you to concentrate on paying down the card that receives the transfers without having to satisfy multiple minimum payments during the month.

Naturally, this strategy only makes sense if you don’t reuse your other credit cards while paying down the consolidated balance. That sort of behavior will only land you in greater debt.

How Can I Build Credit Using a Credit Card?

All the reviewed credit cards, except for the prepaid ones, report your payment activity to one or more of the three major credit bureaus. These reports build your credit history and help the credit bureaus calculate your credit score.

To build your credit, you must demonstrate creditworthy behavior, and you can use your credit cards in this regard.

FICO Credit Score Factors

The most important component of your credit profile is your payment history, which comprises 35% of your FICO score. Here the advice is elementary: Pay your credit card bills on time.

It’s better to make the minimum payment on time than to make a larger payment late. You will severely hurt your score if your credit card balance is delinquent by more than 90 days or if it goes into collection.

Thirty percent of your FICO score stems from amounts owed. Your credit card balances are an important part of your total debt. Don’t let the amount you owe exceed 30% of the total credit available to you. If it’s higher, pay down your cards and other debts.

Another 15% of your score represents the length of your credit history — the longer the better. Therefore, do not close your credit card accounts simply because you no longer use the card.

Place your obsolete cards somewhere safe and let them molder quietly. Better yet, pull one out occasionally and use it — FICO looks at how long it’s been since you last used it.

Taking on too much new credit can hurt your score. In fact, new credit makes up 10% of your FICO score.

To protect your score, don’t apply for or open many new accounts too rapidly. Numerous hard inquiries in the previous 12 months can hurt your score (although not if you are rate shopping for a specific loan).

Finally, 10% of your FICO score rests on having a wide credit mix. So, if you have only student loan debt and/or a mortgage, getting a credit card may raise your score a bit.

Whatever your credit score, it’s important that you fix your credit reports to remove costly mistakes. We’ve mentioned how you can get your credit reports from AnnualCreditReport.com, When you receive your reports, carefully inspect them for mistakes and omitted information.

According to a study by the Federal Trade Commission, 26% of those surveyed reported at least one derogatory mistake on their credit reports, If you find any mistakes, you can dispute incorrect information or supply missing information by contacting the credit bureau.

Look for common errors. For example, credit reports often conflate your information with that of persons with a similar name.

Other frequent errors include missing accounts, transcription errors, wrong account numbers, double entries, and bad debts from more than seven years ago. If you’ve closed an account on your own initiative, ensure the report doesn’t say the account was “closed by grantor,” which makes it appear that the account was closed by the creditor.

To fix errors, you need to contact both the organization that supplied the inaccurate information and the credit bureau. The Fair Credit Reporting Act requires these parties to correct mistaken information. The Act gives you certain rights, including:

  • The right to receive copies of your credit reports containing all the information on file as of the time of your request. You furthermore have the right to receive a free copy of your credit report within 60 days of being denied credit due to information provided by the credit bureau.
  • The right to know who received your credit report in the last 12 to 24 months.
  • For denied credit applications, you have the right to know the name and address of the credit bureau that the creditor contacted.
  • The right to demand that the creditor and the credit bureau investigate the dispute.
  • You have the right to add short explanations to your credit report explaining your side of the story regarding disputes that were not resolved in your favor.

While once, you had to correct errors through formal written communication, nowadays you can initiate credit disputes online via special webpages at Equifax, Experian, and TransUnion.

To begin the dispute process, clearly identify the information you believe to be incorrect. The credit bureaus then have 30 days to investigate each item, although they can ignore disputes they deem to be “frivolous.”

Attach copies of relevant documents that back up your claim. Specifically request that the credit bureau correct or delete the disputed information.

If you prefer, you can mail the information to the credit bureau. Make sure you use certified mail and request a return receipt. Always keep copies of all correspondence and documents.

An internet search will quickly turn up websites that provide sample dispute letters you can use as templates for your own correspondence. Also, write to the creditor or information provider responsible for the inaccurate entries on your credit report. You should request that the creditor send you a copy of any correspondence between the creditor and the credit bureau regarding your dispute.

The goal of all this effort is to remove inaccuracies that hurt your credit score. However, even if the dispute is resolved in your favor, you may not see a boost to your score.

For example, suppose the credit bureau didn’t recognize that you closed an account. Your credit score may not increase if they agree to report the account closed because the account and payment history will continue to appear on your report. In another example, the bureau may remove some derogatory information, but additional negative information on the report may prevent your score from rising.

If the dispute is not settled in your favor, make sure you ask the credit bureau to attach your dispute statement to your report. You can also ask (for a fee) that recent recipients of your credit report receive a copy of your dispute statement. As a last resort, you can contact a lawyer to help resolve the dispute in your favor.

How to Build Credit with a Credit Card

Rebuilding your credit also requires you to pay your bills on time. Your credit score can suffer substantial damage from late payments and collections.

Try to keep your payments timely by enrolling in automatic payment programs. For example, you can have your mortgage provider pull the monthly payments from your bank account automatically.

If you have delinquent payments, your best bet is to get current on those accounts. Otherwise, you may be saddled with a low credit score.

Be aware that paying off a collection will not remove it from your report. However, you may be able to negotiate with the collection agency to have the entry expunged in return for you paying the debt back.

Establishing a long record of on-time payments should help to increase your score. Also, the impact of derogatory information evaporates over time, so even if you have black marks on your report, they will cease hurting your score.

Usually, negative information remains on your report for no more than seven years, although some bankruptcy filings may remain for up to a decade.

If you’re having trouble paying your debts, you can work with a credit counselor and/or a debt settlement agency to negotiate easier repayment terms. You may be able to arrange some debt forgiveness as well.

Will I Need a Bank Account to Open a Credit Card?

Some credit cards do not require you to have a bank account, but you’ll usually find it easier to manage your credit cards if you do have a bank account.

Bank accounts allow you to pay your credit card bills online. That becomes a big hassle if you don’t have a bank account. You’ll have to pay your card with cash or money order, either in person at a bank branch or via the mail.

You could also use a money service, but that tacks on extra expenses. Bank online payments are instantaneous, while other methods introduce delays. Moreover, delivered payments could get lost in the mail.

In addition, you can use your bank account to set up automatic monthly payments to your credit card. You can set the payments to equal the full balance, the minimum amount due, or some other amount. If you get your credit card from the same bank that provides your checking and/or savings account, you can manage the whole lot on the bank’s mobile app.

OpenSky Secured Visa Credit Card

The OpenSky® Secured Visa® Credit Card doesn’t require a bank account for approval.

Nonetheless, many consumers, especially millennials, don’t want to use a bank or credit union and prefer not to use any type of financial institution. If you fall into this category, you may want to consider the OpenSky® Secured Visa® Credit Card — it doesn’t require a bank account, even though your security deposit is FDIC-insured.

If you are unbanked, you may naturally prefer to use a prepaid credit card. These are a good alternative for anyone who would rather not hassle with banks and all their fees and rules.

Consider the PayPal Prepaid Mastercard®. Many PayPal customers are unbanked and prefer it that way — for them, this Mastercard is perfect.

Our review of 20 credit cards for bad credit has revealed a few appealing alternatives aimed at consumers with less-than-perfect credit. Be sure to study the rates and fees charged for every card offer you consider so you avoid a predatory product that profits off consumers who need help.

These card reviews and handy tips for improving your credit can help you avoid costly mistakes.

Advertiser Disclosure

CardRates.com is a free online resource that offers valuable content and comparison services to users. To keep this resource 100% free, we receive compensation from many of the offers listed on the site. Along with key review factors, this compensation may impact how and where products appear across the site (including, for example, the order in which they appear). CardRates.com does not include the entire universe of available offers. Editorial opinions expressed on the site are strictly our own and are not provided, endorsed, or approved by advertisers.



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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.

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 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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