You’ve leased a car, and you realize that you went over your mileage limit. This problem is pretty typical for drivers who lease vehicles. It happens more often than you think. So when you’re in this situation, what do you do?
We’ll tell you about all your options, including what happens if you exceed the allowed miles in your car lease, how much it could cost you, and how to avoid this problem in the future.
What happens if you go over miles on a lease?
When you decide to lease a car, you drive the vehicle for a certain amount of time, then return it after the lease contract is up. However, you also get to decide the annual mileage you expect before you lock in the rate at the start of the lease. But what happens if you go over the agreed-upon limit?
Here are your options if you know you got close to or exceeded the mileage on your lease.
1. Turn the car in early
Due to economic factors, dealers today may want you to turn in the leased vehicle early. Today, many leased cars are worth more due to factors like the supply chain. If turning in the car is your only option because you can’t afford to pay the overage fee, this may be worth a look.
However, you’ll need to line up another vehicle to get into before you turn over the keys, and that, too, can be tricky.
2. Buy the car
One of the best ways to escape the over-limit fee is to negotiate a lease buyback at the end of the term if your budget allows. If you turn in your car and find you owe thousands of dollars in extra mileage fees, you may be better off just using that as a down payment for the vehicle. Otherwise, you spend thousands of dollars and walk away with nothing. Perhaps, not even a car to drive due to the shortage.
Buying the car could work out in your favor because used car values skyrocketed in the past year. So if you were to purchase your leased vehicle and then turn around and sell or trade the car, chances are you will come out ahead. See more about trading the car below.
3. Trade the car at a dealership
Some prepandemic leasing contracts allow you to trade your leased vehicle at any dealership. Dealerships will be all too happy to obtain a newer vehicle they can add to their used car inventory and handle all the paperwork for you. Before you trade, check the value of the vehicle to know what you’re working with before you head to the dealership.
Be aware that some contracts may require that you bring the vehicle to the original dealership where you leased the car.
4. Pay the fee
To solve your leasing problem, it may be cheaper to pay the fee for driving the extra mileage. To do this, you will need to research your lease terms and determine the over-mileage penalty for your lease. Here, you will find the total allotted miles and the penalty per mile you drive over. Most times, you will have to pay anywhere from around 15 cents to 25 cents per mile.
With this option, if you don’t go too far over your limit, it won’t hurt your wallet too much. But be wary that 25 cents a mile can add up pretty quickly. For example, let’s say your agreement states you must pay 15 cents per mile over 12,000 miles, and you drove the car 15,000 miles. The 3,000 miles will cost you $450. If your rate is 25 cents per mile, the cost rises to $750.
But be aware you may find an easier fix with the earlier options mentioned above.
5. Stop driving the car
It sounds simple, but this option is not always feasible. It’s only an option if your lease isn’t up yet. If you close in on your mileage cap near the middle or end of your lease, try reducing your weekly drive time. While this isn’t as easy to do as it sounds, carpooling with friends or taking public transit could pay off for you in the long run.
You will need to do a deep dive into your driving habits to see if this is even a feasible option for you, though. If you have to commute to work daily, this might not be for you. Also, if you do not have a friend or family member who would allow you to use their car, this is probably not the option for you, either.
How much do the extra miles cost in a car lease?
The extra miles on a leased car may not cost you as much as you may think since most companies charge 15 to 25 cents per mile for any overages.
So while it is essential to monitor your miles on a leased car, going a few hundred miles over the limit won’t be too bad.
Is it better to buy or lease?
Buying and leasing depend on your circumstances and preferences. While both have pros, both have cons, too.
Leasing is an excellent option to consider due to vehicle price increases that put new and some newer used models out of reach. Leasing also works well for buyers who can’t afford a large down payment. For some, leasing offers the chance to drive new cars every few years.
When you lease, you typically keep the vehicle for three years. Then, you can pick a new car to drive when the lease is up. And if you still want the car after years of driving it, you will have the option to buy it.
Along with the ability to switch cars often, you will pay a much smaller down payment, if at all. As a result, you can save thousands on upfront costs. And maybe one of the best perks will be your lower monthly car payments. Leasing is less expensive than buying because you only pay for the car’s depreciation, not the actual vehicle and interest.
However, a lease may not work for everyone. When leasing, you pay for a car you don’t own. As a result, you cannot make any upgrades or modifications to the car because it’s not yours. Along with this, you may need to restrict your driving habits a bit. You are limited to a certain amount of miles during your lease, and if you go over that, you pay a fee for every mile over. Once you complete your lease contract, you are essentially back at square one. You will either need to lease another vehicle or buy the one you have been leasing for years or walk away and start over with something else.
Learn more: Leasing a car vs. buying a car — how to decide
Buying is your best bet in most cases. When you buy a car, whether financing or paying cash, eventually you will own the car. Purchasing a vehicle is the most attractive choice for prospective car shoppers. Unlike when you lease a car and turn it back in, you will have ownership when buying a vehicle after your payments. You can also customize the car even if you are still making payments. You also have the freedom to drive as many miles as you wish. Since you own it, there are no mileage restrictions.
There are a few cons to this option, though. For starters, you will be paying interest on the car if you use financing for the purchase, and your monthly payments will be significantly larger. With higher monthly payments, you will need to put down between 10% to 20% of the car’s cost up front, which can be very expensive. So while you will own the vehicle at the end of the day, you will spend much more money.
How can I avoid the car lease mileage trap before signing?
Here are some mileage tips to consider before deciding to lease your next car. Because let’s face it, some aspects of leasing are similar to negotiations when buying one. All negotiations must occur up front. And the contract’s mileage allowance can be just as important as the price.
1. Prioritize mileage needs before you sign a lease
When leasing a car, it’s easy to focus on the principal amount and upfront fees as a top priority. But to realistically consider mileage limits is the bigger deal breaker. Since spending less per month is the primary motivation for leasing a car, remember that your lease payment will increase with higher mileage. So knowing how many miles you drive per year is very important before ever deciding to lease.
Calculate the number of miles you think you’ll need on a 3-year lease. Know that the U.S. Transportation Department says in its latest figures available that the average driver puts 12,724 miles yearly on a car. That’s down from 14,263 in 2019.
So, start by considering your driving habits for the past three years on your existing car. Then, divide the total miles driven by 36 to get your monthly and yearly goals. Think of other factors like driving vacations or regular visits to family out of town. Put a 5% to 10% cushion in for unexpected mileage, and consider whether the car lease offers the number of miles you need.
2. Cautiously consider a high-mileage car lease
If all the traditional reasons you want to lease a car still make sense to you, but the mileage is too limiting, ask for a high-mileage lease. Although the whole point of leasing versus buying a car is getting a lower payment, when 10,000 to 13,000 miles per year is not enough, you’ll pay more per month to add miles. Therefore, you should proceed with caution and analyze your decision carefully before signing a high-mile lease.
According to Leaseguide.com, the average high-mileage lease that still makes sense is a 15,000- to 30,000-mile annual lease. For that, you will pay 40% to 50% more per month. And if you decide to push beyond 30,000 miles per year, at that point, leasing ceases to make sound financial sense.
3. Give yourself an out with a transferable car lease
Another thing to consider is whether your lease contract is transferable. Consider what you would do if you were to move, lose a job, or experience another unforeseen occurrence. Having the ability to transfer the lease could be the least expensive option in some scenarios.
Some websites can match you to people looking to take over car leases if you want to get out of your lease. One is SwapaLease.com, and another is LeaseQuit.com. But remember, you cannot do it without a “transferable lease” clause in your contract, so make sure to look for leases that include it.
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How much do miles matter in a car lease?
In a nutshell, mileage limitations can be the most significant deterrent to leasing. It’s a worthy concern because the number of miles offered may not be enough for some drivers. It’s especially true for people who drive long distances regularly in rural areas.
And, if returning to the office after working from home remains a concern, mileage limits should ultimately drive your decision to lease or not to lease.
This story originally ran on Autotrader.com.