Don’t Worry About The Miles!September 28, 2017
There are many advantages that leasing a car has over buying one. These include lower monthly payments, little or no money down, full warranty coverage, the latest technology, and lots more. These are all good things.
But there is one aspect of leasing that gives some people cause for concern: the mileage allowance that is part of every lease. Let’s look at why there is a mileage number in your new car lease, and why it is really nothing to worry about.
Why Are There Miles In My Lease?
Let’s go back to Leasing 101 for a moment. Leasing divides a vehicle’s value into two parts: the cost of the lease, and the residual value of the vehicle after the lease ends.
The first part is the monthly payments and other costs you pay during the term of the lease. The second part is the vehicle’s residual value, or its estimated value after your lease ends. The residual value is based on three elements:
- The age of the vehicle
- The condition of the vehicle
- The mileage of the vehicle
Your lease agreement specifies what these three items must be at the end of the lease. The vehicle’s age is set by the length of the lease term, so if the lease term is 36 months, the car will be three years old.
The condition of the vehicle is also set out in the lease agreement. If you do not return it in good condition, you either have to fix it or pay for repairs.
Then there is the mileage. Because additional miles over the allowed amount will lower the residual value of the vehicle, there is an additional fee, due at lease end, for these extra miles.
That’s how the math works. Now here’s how you can avoid being hit with an over-mileage fee if you go over your allowance.
Scenario #1: You Have Several Months Left And You Know There’s A Problem
Let’s say that you are 30 months into your 36-month/36,000-mile lease. Your odometer just turned over to 34,000 miles. It is clear that you will not be able to avoid going over your limit before your lease ends. What can you do?
There’s an easy solution – turn in your car now and start a new lease! Many leasing companies provide incentives to get you into a new lease, even if your current lease term is not up. Some fees may be involved in the transition process, but the incentives will usually cover part or all of the cost. Best of all, you avoid the big hit of paying for thousands of extra miles at lease end.
These are called “pull-ahead” leases. They are often offered by the manufacturer of your current vehicle, as a way to keep you “in the family.” Some may let you out of your last few monthly payments as well. Competitive brands may also do this, as a way to “conquest” you, by getting you to switch brands. Check both options as you search for the best deal.
Scenario #2: You Are Close To Lease End And You Are Way Over
In this situation, imagine that you have two months left on your 36-month/36,000-mile lease and your odometer reads 40,000 miles. If this happens, relax. There is a way out!
Before the end of your lease, start shopping for a new leased vehicle. Look for one with a large cash rebate, in addition to a low monthly payment. Then you set up your new lease and use the rebate to pay the over-mileage fee. You are now using the new car to pay for the old one!
Keep An Eye On Your Miles And Know What Your Options Are
As you can see, going over your miles is not the end of the world. These tips can help you avoid the expense and aggravation of paying these potentially large fees. But you should pay attention to how many miles you are driving, relative to your allowance. This way, you can be proactive and deal with the situation to your best advantage.Insider Leasing Tips