Car leasing has become extremely popular in the past few years. More and more people commit to the option of leasing a car. It is due to the fact that leasing a car is considered cheaper than financing a vehicle. Additionally, leasing offers a chance to easily change a vehicle every 2-3 years. In simple terms, car leasing gives you a chance to drive a vehicle for a set period of time but it does not give you the right to own a car during lease term.
However, car leasing is not for everyone. Leasing normally comes with certain restrictions and the most common restriction is mileage limit. In the vast majority of cases, auto leasing companies offer lease agreements with 10,000 miles limit per year, accounting for 30,000 miles for a 3-year period. If you are going to be driving a car within these limits, then car leasing is a good option for you. But if you normally drive more than 10,000 miles per year, it would be better for you to finance a car.
However, several brands offer high-mileage leases for people who are afraid of exceeding typical mileage limits. Even if you managed to find that a brand that provides an extended mileage program, you should keep in mind that high-mileage leases come with a higher monthly payment. But in return you are given a chance to drive more miles than with a standard car lease. The following sections of this article depict 4 key things you should consider about extended mileage lease programs.
What is a high-mileage lease?
As was mentioned above, car lease agreements come with mileage limits, which normally vary between 10,000-15,000 miles per year. If you exceed these limits, car leasing companies will make you pay a penalty for every extra mile over the limit. In general, you will have to pay between 10 to 15 cents per additional mile driven.
If you already know that you will exceed the mileage limit, it is better to negotiate a higher mileage coverage. However, it is also worth mentioning that not all car makes offer an option to have an extended mileage limit. If you decide to go for a high-mileage lease, you should be prepared to make higher monthly payments. Although, these payments are going to be less than you would pay in excess mileage charges. There are also auto leasing companies that will refund you money for the extra miles that you have not used.
When is a high-mileage lease a good idea for you?
Going for an extended mileage lease program might be a good option for you if you are planning to drive more than 15,000 miles per year. If you put too many miles on a lease vehicle, you make it depreciate faster. That is the main reason why extended mileage lease programs involve higher monthly payments. You simply have to make up for the increased depreciation.
Even if you make higher than average monthly payments because of a high-mileage lease, it is a good way to avoid paying penalties for exceeding mileage limits. A lot of people think short-term without taking into consideration what will happen when your lease contract ends. But it is extremely important to determine the number of miles you drive per year in order to avoid paying extra at the end of a lease agreement.
When is an extended mileage lease program a bad idea for you?
Let’s assume you need a vehicle only to take you to work and back and you do not normally travel long distances. In this case, there is no need to apply for a high-mileage lease program. You just need to be sure that you are not going to exceed a normal mileage limit of s standard lease. The best option for you would be to get a standard lease and keep an eye on your odometer.
When it comes to car leasing, you need to make sure that it will actually save you money in the long-run. In some cases, higher monthly lease payment for an extended mileage can actually be higher than you would pay if you finance a car. Therefore, if you know that you normally drive over the standard miles limits imposed by leasing companies, it would be a good idea to consider an option to finance a car.
Before making the final decision between leasing or buying, it is advised to compare both fees, monthly payment for a car lease and monthly payment for financing a vehicle. It is not that difficult to do the math, but it can save you a lot of money in the long-run.
What to do if you do not know if a high-mileage lease is for your?
Monthly lease payments are calculated based on the expected depreciation of the vehicle, which can actually add up if you drive over the mileage limit. Normally, people who drive a lot, they try to avoid car leases. If monthly lease payments for an extended mileage program are extremely high, it would be wise to finance a car instead. If you are still not sure what to do, you can consider the following options:
1. Buy a car instead: even if you are 100% sure that you will want to change your vehicle in a few years, buying could still be a more affordable option than leasing with an extended mileage program.
For instance, if you drive more than 15,000 miles a year and a high-mileage lease would cost you extra $6,000 over the life of a lease, you will have to check how these miles could affect the car’s depreciation. If the extra depreciation is less than $6,000 then a high-mileage lease is considered too expensive.
In the aforementioned example, it would be more wise to finance the vehicle and save each month to pay the difference between what your car will be worth at trade-in and what you will still owe. But you might be wondering what happens if you drive less than expected. For you, as a car owner, that will work in your favor because your vehicle will have a higher market value when you decide to sell it or trade it in.
2. Buy a vehicle at the end of lease term: in the vast majority of cases, auto leasing companies give you an option to buy a vehicle when your lease agreement ends. If it happened that you exceeded a mileage limit, you can avoid paying penalties for extra miles by buying your car at the end of a lease term. Undoubtedly, this is not a great option if you have planned to change your vehicle at the end of a lease agreement. In this case, you will have to pay penalties for every extra mile over the limit.
3. Refinance your vehicle: another option for people who notice that they cannot keep up with a mileage limit is to refinance their vehicle. Refinancing can be done at any point during the lease term. Refinancing is a great option if you accidentally exceed a mileage limit.
To conclude the aforementioned, it is highly important to determine whether car leasing fits your lifestyle and budget. You should also consider the number of miles you drive per year and the frequency of buying new vehicles. Make precise calculations and determine whether a high-mileage lease program makes sense from a financial point of view. Take your time, and conduct extensive research before signing a lease contract.