Paying excess mileage charges when an auto lease ends is something most consumers take care to avoid. But many of these same careful lessees get an unhappy surprise at turn-in because of other charges and costs they failed to think about.
Carefully considering things such as best length of lease and residual value and then taking a few simple steps at the beginning of the lease and during the lease term can pay big dividends when the lease ends. The first thing is to read the lease document carefully and clearly understand the sections covering excess mileage, wear and tear, and processing fees.
Then consider what steps you can take to avoid charges when the auto is turned in. What you consider minor dings, dents or scratches can end up costing you a lot. "When you lease a car, the sticker shock comes at the end, not the beginning," said Jack Gillis, a spokesman for the Consumer Federation of America and author of The Car Book, a buyer's guide.
A Changing Market
Consumers love auto leasing because it offers an easy way to get into a new car with a lower down payment and lower monthly payments than financing a vehicle to be purchased. This is because the lessee is only paying for the amount of the car's value that is used. Typically, people lease for three years, so they only pay for the first three years of a car's life — which are definitely the car's best years.
Before tighter credit and lower residual values, car dealers also loved leasing because it brings customers back into the dealership at the end of the lease, every two or three years. Also, because many consumers are confused by leasing terms, dealers can more easily take advantage of them. Particularly in difficult economic conditions, leasing companies are looking for every way possible to improve their revenues.
Unfortunately, leasing which was once a way for car dealers, customers, and manufacturers to all get a decent deal is the latest victim of the economic downturn. Chrysler, Ford, BMW, GMAC and several major banks have announced reductions, if not complete elimination, of lease programs. Automobile dealers and experts expect more to follow. So a consumer who leased in the past should not assume the same rules apply today.
These changes and tighter credit conditions make it more difficult to lease and have caused leasing companies to be more stringent in their lease-end requirements. Lease contracts typically run 24 to 36 months, and consumers usually turn in their vehicles at the end of the term.
That leaves the auto maker on the hook to sell vehicles that may have declined significantly in value compared to assumptions made at the time the original lease was signed. And that means lessors are going over returned vehicles with a fine-tooth comb to get all the extra charges they can.
Major Problem Areas
Unexpected shocks and charges at turn-in are primarily associated with three areas of the lease, according to industry reports.
Disposition fee: This is a charge levied by the leasing company if the lessee chooses not to buy the vehicle at the end of the lease. This fee is set as compensation for the expenses of selling, or otherwise disposing of the vehicle. It typically includes administrative charges; the dealer’s cost to prepare the car for resale and any other penalties.
Lessees need to make sure this fee is stated clearly in the contract and is agreeable before signing on the dotted line. At lease-end, the lessee is left in no position to negotiate as the dealer can apply the refundable security deposit towards this fee.
Excess mileage charges: Almost all leasing companies will charge a premium for each