Leasing a Car: How Mileage Limits, Wear Charges and Early Termination Really Work

A lease can put you in a newer car for a lower monthly payment than a loan.

That lower payment comes with rules, and those rules decide what you pay at the end.

Mileage limits, wear and tear and early exit charges catch many drivers by surprise.

This guide walks through how those terms work.

It also shows how to plan for them from the day you sign.

What You Are Really Paying For

When you lease, you pay for the right to use a car for a set time and a set number of miles.

The Federal Trade Commission explains that you are paying to drive the car, not to buy it.

Your payments cover the expected loss in value of the car during the lease.

They also cover a rent charge, plus taxes and fees.

At the end, you return the car unless the agreement lets you buy it.

The Military Consumer guide to leasing adds that buying it usually costs an additional amount.

Because the payment is based on lost value, anything that lowers the value of the car can cost you.

Extra miles and extra damage are the two biggest examples.

Mileage Limits: Do the Math Before You Sign

Most standard leases cap how far you can drive each year.

According to the FTC, the annual limit in most standard leases is 15,000 miles or less.

A higher limit is usually available, but it will probably raise your monthly payment.

Go over the limit, and you will probably pay an extra fee when you return the car.

Start with an honest estimate of how much you really drive.

  • Check the odometer of your current car and your service records from the past year or two.
  • Add your daily commute, school runs and regular errands.
  • Include road trips, holiday visits and any planned move.
  • Think about changes coming soon, such as a new job farther from home.

Then multiply your yearly miles by the number of years in the lease.

For example, a three-year lease with 12,000 miles a year allows 36,000 miles in total.

If you actually drive 15,000 miles a year, you would end up about 9,000 miles over.

Ask the dealer for the exact charge per extra mile and get it in writing.

Multiply that charge by your expected overage to see the real cost.

Then compare it with the price of a higher mileage limit and choose the cheaper option.

Keep an Eye on Your Miles During the Lease

Mileage problems rarely appear overnight.

They build slowly over months of normal driving.

Check your odometer every few months and compare it with your allowance to date.

A simple note on your phone with the date and the reading is enough.

If you are running ahead, you still have time to adjust.

You might use another household car for long trips or combine errands into fewer outings.

Spotting the trend in the first year is far easier than facing a big bill at turn-in.

Wear and Tear: What Counts Against You

The FTC says you are responsible for excess wear and damage when you lease.

You are also responsible for any missing equipment.

The lease agreement defines what excess means, so read that section before you sign.

Ask the dealer to show you the standards they use when a car comes back.

Depending on your lease, trouble spots can include the following.

  • Dents, deep scratches and cracked glass.
  • Tires worn below the standard written in the lease.
  • Stains, tears or burns in the upholstery.
  • Missing items, such as a spare key, floor mats or the owner's manual.

Keep every key, manual and accessory that came with the car in a safe place.

Take clear photos of the car when you pick it up.

Take another set before you return it, including a photo of the odometer.

Those photos help if there is a disagreement about damage or miles later.

Maintenance and Insurance Are Part of the Deal

A lease is not only about the monthly payment.

The FTC notes that you must service the car according to the recommendations of the manufacturer.

You also have to keep insurance that meets the standards of the leasing company.

Follow the maintenance schedule in the owner's manual and keep every receipt.

Ask your insurance agent whether your coverage meets the lease requirements before you drive away.

Ending a Lease Early Can Be Expensive

Life changes, and sometimes a lease no longer fits.

The FTC warns that ending a lease early may bring a substantial early termination charge.

Before you sign, find the early termination section and read it carefully.

Ask the dealer to explain, in writing, how the charge is figured.

If there is a real chance you will move or change cars soon, a shorter lease may fit better.

Buying instead of leasing may also make more sense in that case.

A Special Rule for Service Members

Military families face moves that most civilians do not.

Military Consumer explains that, under certain circumstances, service members can end a vehicle lease.

That can apply if you signed the lease before you joined the service.

It can also apply if you get orders to deploy outside the continental United States for at least 180 days.

In those cases, you would not owe an early termination penalty.

You could still owe reasonable charges for excess mileage, excess wear or damage and certain other fees.

Talk with a personal financial manager or a legal assistance office before you act.

Read the Paperwork Before You Sign

The FTC advises that you not be rushed at signing time.

Ask the dealer to slow down if they move quickly through a tablet or other device.

Make sure you can see every fee and charge clearly.

Compare the terms with any written offer the dealer sent you earlier.

Do not leave without a signed copy of the completed lease agreement.

Turning the Car In

The end of the lease goes more smoothly with a little planning.

  • Find your lease agreement and reread the sections on wear, mileage and fees.
  • Gather every key, the owner's manual and any accessories that came with the car.
  • Clean the car inside and out so damage is easy to see and judge fairly.
  • Take dated photos of every side, the interior and the odometer.
  • Ask for a written copy of any inspection results and any charges.

If you plan to buy the car instead, ask for the purchase price in writing well before the lease ends.

That gives you time to compare it with similar cars and with loan offers from your own lender.

Questions to Ask Before You Lease

  • How many miles a year does this lease allow, and what does each extra mile cost?
  • How much more would a higher mileage limit cost each month?
  • What counts as excess wear, and can I see the inspection standards?
  • What is the early termination charge, and how is it figured?
  • Can I buy the car at the end, and for how much?
  • What insurance coverage does the leasing company require?

Lease or Buy?

Leasing can suit drivers with steady, predictable mileage who like a newer car every few years.

It can be costly for drivers who put on many miles or who may need to end the deal early.

Compare the total cost of each option, not just the monthly payment.

Include the mileage charges, possible wear charges and any amount due at signing.

The Bottom Line

A lease is a promise about time, miles and condition.

Estimate your mileage honestly, read the wear and termination sections and keep good records.

Do that, and the end of your lease is far less likely to come with a surprise bill.

Sources and Further Reading