Vehicle Lease Agreements: Fees, Mileage Limits and Early Termination

A vehicle lease lets you drive a car for a set period in exchange for payments. The contract determines mileage limits, wear charges and what you owe if you end it early.

Terms to check

• Monthly payment, down payment and fees due at signing.
• Lease length and annual mileage allowance.
• Cost per mile if you go over.
• Wear and tear standards and excess damage charges.
• Insurance requirements.
• Purchase option and price at the end.
• Early termination charges.

Early termination

Ending a lease early can mean paying much of the remaining payments plus fees. Options may include a lease transfer, a buyout or selling the car if the lease permits. Read the termination section before signing.

Private leases

People also lease a vehicle to a friend, employee or family member. A written agreement should cover who pays insurance, repairs and registration, and who is responsible for damage or tickets.

Tips

1. Compare the total cost, not only the monthly payment.
2. Negotiate the price as you would for a purchase.
3. Inspect the car and document its condition.
4. Keep service records.
5. Ask about gap coverage.

Understanding the cost beyond the monthly payment

Lease advertising often highlights a low monthly payment, but the total cost includes the down payment, acquisition fee, taxes, registration, disposition fee and any charges at the end. Compare the total cost over the lease term to buying. Ask for the capitalized cost, residual value and money factor, because they determine the payment. A lower payment with high fees may not be a better deal.

Mileage and wear charges

• Annual mileage allowances commonly range from about 10,000 to 15,000 miles.
• Overage charges are charged per mile and can add up quickly.
• Buying extra miles up front is often cheaper than paying at the end.
• Read the wear and tear standards and ask for a pre-return inspection.
• Keep service records, because the lease requires maintenance.

Early termination and lease transfer

1. Check the early termination formula, which may require paying most remaining payments plus fees.
2. Ask about lease transfer or swap services and the lessor's requirements.
3. Consider selling the car to a dealer if a buyout price allows.
4. Compare ending early to completing the term.
5. Plan for life changes, such as a move or job change.

Insurance and gap coverage

Leases usually require higher insurance limits and may include or require gap coverage, which pays the difference between the car's value and the lease balance if the car is totaled or stolen. Confirm that gap coverage is included or buy it. Ask your insurer what the lessor requires.

End of lease choices

• Return the car and pay any fees.
• Buy the car at the residual price.
• Lease or buy another vehicle from the same dealer.
• Arrange the inspection and any needed repairs in advance.
• See our guides to vehicle bills of sale and used cars.

Terms to know

• Lessor: the owner leasing the car.
• Lessee: the person leasing.
• Capitalized cost: the price used to compute the lease.
• Residual value: the car's value at lease end.
• Money factor: the finance charge.
• Disposition fee: a charge for returning the car.

Scenario

A driver leases a car with a 10,000-mile annual limit but drives 14,000 miles a year. At the end of three years she owes overage charges for 12,000 miles. If she had bought extra miles at signing, the cost would have been lower. She also owes excess wear charges for a cracked windshield not repaired before return.

Frequently asked questions