Leasing a car can make economic sense for some people. With a lease, you can get a car to drive with very little money down and low monthly payments.
However, car leases have limitations. A limit on the number of miles that you can drive is one of them. Exceed this mileage limit, and you’ll face some hefty overage fees at the end of the lease.
So, what can you do if you go over the mileage limitations on your lease? Here are several options.
What are the Terms of a Car Lease?
A car lease has two terms you need to know: the residual value of the car at the end of the lease and the mileage limitation.
Residual value is the value of your car that the leasing company expects it to be worth at the end of your lease. Mileage more or less than the limitation specified in the lease can affect this value. Most leases have a limitation of 12,000 or 15,000 miles per year over three years.
One option you don't have is to change the terms of your lease. After you sign the lease agreement, it's done and you have to comply with its terms and conditions.
Read More: Do You Need a Credit History to Lease a Vehicle?
What are Excess Mileage Charges?
Excess mileage charges aren’t really penalties. They are fair compensation to the leasing company for the higher depreciation cost and lower residual value that results from the higher-than-expected mileage driven. More miles means that the car is worth less at the end of the lease.
The penalties per mile are spelled out in the lease and vary by the price of the car. Lower-priced cars usually pay $0.15 to $0.20 per mile, with higher priced cars at $0.25 per mile. In some cases, luxury models may cost $0.30 per mile
If the excess mileage charge is $0.25 for each mile over the limit, that means you're going to pay $250 for every 1,000 miles that you exceed the limit.
Read More: How to Trade a Leased Car When the Lease Isn't Up
Track Your Mileage and Start Planning
You will have more options to avoid excess mileage charges if you start tracking your mileage usage early in your lease.
For example, if you have a 12,000-miles-per-year three-year lease, that means you should be driving no more than 1,000 miles per month. However, if you start tracking your miles and find that you're driving 1,200 miles per month, this means that over the life of your lease you will accumulate 7,200 excess miles (200 miles X 36 months).
If the excess mileage charge on your lease is $0.25 per mile, you will wind up with an excess mileage charge of $1,800 (7,200 miles X $0.25). This is not exactly a small sum to have to pay out-of-pocket at the end of your lease.
By finding out that you need to reduce your mileage driven by 200 miles per month, you can start finding ways to bring that figure down.
If your driving habits have changed and you find it will be difficult to reduce your extra miles, then you should probably look at taking out a high-mileage lease the next time.
Tips to Reduce Mileage Usage
These are a few tips that will help to reduce your mileage:
- Reduce the miles you drive - Rely on friends or family for small errands, take public transportation or start car-pooling with co-workers
- Use rental cars - Instead of using your leased car, rent another car if you're planning long trips or taking family vacations.
- Find ways to consolidate your trips - Look at your driving habits to find ways you can drive less. Use your GPS set to find the shortest routes.
- Combine trips - Stop by the grocery store or pharmacy on your way home from work instead of making a separate trip.
These tips may seem trivial, but you might be surprised how much mileage you can reduce when you start analyzing your driving habits.
Exercise a 'Lease Pull-Ahead'
Dealerships and car manufacturers occasionally offer special deals known as “lease pull-aheads.” The idea is to get the customer back into the showroom before their lease is up and get them into a new lease. For a number of reasons, the dealer and manufacturer may need your particular car for their used-car inventory or just to control the number of cars that are coming off leases to prevent flooding the market and driving prices down.
As an incentive for you to enter into a new lease, the dealer may offer to forgive excess mileage charges, disposition fees and any other early lease termination fees.
Enter Into a New Lease
Dealers want to keep your business, so if you start a new lease at a dealership for the same manufacturer, they may forgive the charge for mileage overage. By starting a new lease, the dealer may also forgive the $350 to $500 disposition fee, which is the cost to prepare the car for resale.
Read More: Can I Buy My Car Before the Lease is Up?
Buy Your Leased Car
If you like your leased car and you've kept up with the maintenance, it's probably a good idea to buy it. You will pay the residual value that the leasing company calculated your car would be worth based on the maximum mileage allowed by the lease. Estimating residual values is more of an educated guess than an exact science, so it's possible that the residual value will be less than your car's actual market value, even with the excess mileage.
When you purchase your car at the end of the lease, you will avoid paying the excess mileage penalties. In addition, the leasing company may forgo other fees, such as the disposition fee, since they don't have to take the car and recondition it to prepare for resale.
If you do decide to purchase your leased car, and you're taking out a five-year loan to finance the purchase, you should like it enough to drive it for a total of eight years. You'll have it three years for the lease and five years to pay off the loan.
Even if the residual value of your car is higher than its actual market value because of the excess mileage, you'll save yourself the hassle of shopping for another car.
Start Saving to Pay For the Overage
If you find that it will be impossible for you to avoid the excess mileage charges, start putting aside funds to pay the penalty fees. It'll be easier to accumulate enough funds over time rather than having to write a big check at the end of your lease.
- Rocket HQ: Best Options For High Mileage Leased Car
- Autotrder: I’m Way Over My Lease Miles, What Do I Do?
- Fox News: Help! I'm Way Over My Lease Miles!
- LeaseGuide: Over Miles on Car Lease – What to Do
- Capital Motor Cars: What to Do If You're Over Miles On Your Car Lease
- Autotrader: 5 Reasons Why You Should Buy Your Leased Car
- Insurance Information Institute. "Understand Your Car Insurance Obligations for a Leased Vehicle." Accessed Sept. 21, 2020.
- Insurance Information Institute. "Automobile Financial Responsibility Laws By State." Accessed Sept. 21, 2020.
James Woodruff has been a management consultant to more than 1,000 small businesses. As a senior management consultant and owner, he used his technical expertise to conduct an analysis of a company's operational, financial and business management issues. James has been writing business and finance related topics for work.chron, bizfluent.com, smallbusiness.chron.com and e-commerce websites since 2007. He graduated from Georgia Tech with a Bachelor of Mechanical Engineering and received an MBA from Columbia University.