Car Lease Penalties

Like renting an apartment instead of purchasing a house, a car lease can be a good option for buyers who don't want to make a long-term investment. But because you don't own the car you're leasing, dealerships often apply penalties to ensure the leased car or truck doesn't depreciate beyond its market value.

If you aren't aware of lease penalties written into the contract, you may be responsible for paying additional fees, which can wind up costing thousands of dollars.

Common Car Lease Penalties

Every lease is different, so it's important to read over the contract carefully to determine what you're responsible for. This will keep you from incurring any surprise fees at the end of the lease when you have to return the vehicle.

Although this list isn't comprehensive, below you'll find few of the common penalties you should be aware of that are included in most leased-vehicle contracts.

Mileage Restrictions

Most car companies will set a maximum mileage limitation on a leased vehicle to avoid excessive wear and tear. There is no standard number of miles allowed, and it often varies depending on the contract.

Likewise, the fee associated with going over your allowed miles can also vary. An example of a common mileage restriction written into a lease contract would be similar to the one below:

  • Mileage allowance: 12,000 miles annually or 36,000 miles for a lease of 3 years.
  • Penalty: $0.15 for every additional 1 mile beyond the limit.

Be aware that luxury cars can have more excessive penalties. This is done to ensure the vehicle maintains its value.

Early Termination

To keep buyers from backing out of a contract, most financing companies apply stiff penalties for terminating a lease early.

If you are unhappy with a leased vehicle or simply can no longer afford to pay the monthly fees, try one of the tips in the section below to find an alternative to early termination penalties.

Excessive Wear & Tear

In addition to mileage penalties, if you return a vehicle with excessive wear, you'll likely be responsible for additional charges.

At the end of a lease contract, most dealerships will require a final inspection to determine the condition of the vehicle. Common areas of concern include:

  • Exterior body panels.
    • Dents and holes to the sheet metal are of primary concern.
  • Glass.
    • No chips or cracks.
  • Headlamps and tail lights.
  • Wheels.
    • No scratches or gouges.
  • Tires.
    • Same size and rating that you received at the beginning of the lease.
    • Presence of spare tire and changing tools.
    • No sidewall damage.
    • No exposed cords or belts.
  • Interior.
    • No cuts or tears.
    • No permanent stains.
  • Missing or broken parts.
    • All originally installed equipment must be present.
    • Equipment (such as a stereo) must be undamaged.
  • Engine.
    • All required maintenance must be conducted on time.
    • Mechanical components should be in sound working order.
    • All electrical components should be functioning correctly.

Some automakers will provide a checklist prior to the lease inspection. If you are unsure of what the inspection list includes or would like additional information, contact the dealership.

Tips to Avoid Car Lease Penalties

While lease penalties can be a major deterrent for buyers, there are some things you can do to avoid paying out-of-pocket expenses at the end of a car lease contract.

A few you can use to minimize additional fees include:

  • Keeping track of monthly mileage.
    • EXAMPLE: If your lease allows 12,000 miles per year, keep your monthly mileage under 1,000.
    • If you need additional help tracking miles, use a mileage tracker.
  • Selling the vehicle for the buyout price if you have excessive mileage fees.
  • Negotiating a higher mileage limitation with the sales rep.
    • While this may increase the monthly payment slightly, it could keep you from having to pay excessive fees later.
    • See if this is an option before you sign the initial lease contract.
  • Considering alternatives to early lease terminations:
    • Lease assumption.
      • Lets another buyer take over the payments on your lease for you.
      • This can be an attractive option for buyers with poor credit that have a hard time qualifying for a lease.
    • New vehicle lease.
      • Some dealerships will let you get out of a lease if you agree to another lease on a new vehicle.
  • Viewing the vehicle inspection checklists at the beginning of the lease.
    • See what qualifies as excessive wear and tear before you drive off the lot.
    • This can help you to keep up with scheduled maintenance and repair damages as they occur.
  • Completing all repairs before you turn your car in.
    • Get dents fixed in an auto body shop.
    • Clean the interior.
    • Get new tires, if needed.
    • Have proof of completed scheduled maintenance.

If you believe that any charges at the end of a lease contract are unfounded, you can protest the fees for a representative form the leasing company. Though not all fees may be removed, you could decrease the amount you have to pay.

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