Low mileage lease hides higher cost of new cars

Photo (c) taa22 - Fotolia

Exceeding mileage allowance will be costly on the back end

As the cost of new cars has gone up, leases have become more popular. Consumers find they can drive an expensive car for a lot less per month if they lease it and give it back at the end of the lease period.

Traditionally, leases are set up for three years and 36,000 miles – giving the leasee a 1,000 mile per month allowance. But consumers may have noted lately many lease deals have fewer miles, and are marketed as “low mileage leases.”

The consumers may drive the car the same three years, but will be limited to perhaps 30,000 miles instead of 36,000.

One reason for the proliferation of low mileage leases is the increasing cost of new cars, which now averages a little over $34,000 per transaction. A traditional lease payment will go up along with the cost of the car. So a low mileage lease sounds cheaper.

Getting people in the door

“It's the best way to keep the payment low,” Swapalease.com's Scot Hall told ConsumerAffairs. “It's a good way to get people in the door.”

It's sort of like the airlines. They want to advertise the lowest fare possible because they know that's how consumers choose a flight. But they tack on fees to make the flight more profitable. Therefore, a consumer selecting a flight needs to take all the costs into consideration.

The same is now true when selecting an auto lease. And in many cases, Hall says selecting a lease with a higher mileage allowance will be a better deal, even though it will carry a higher monthly payment.

That's because when you lease a vehicle, you pay for every mile over the allowance when you turn it in. According to Bankrate, a typical excess mileage charge is 20 cents a mile. That means you could owe thousands of dollars at the end of the lease.

Better to pay for miles up front

Hall says it's important to make sure the lease fits your driving needs and not take the first package that's presented.

“It's very important that people understand that not only can they set up different mileage allowances for a lease, but it makes the most sense financially to do so up front,” he said.

According to Edmunds.com, most auto leases can be modified to allow for many more yearly miles than the standard 12,000. In some cases, it says banks are willing to let a potential car lessee sign up for as many as 100,000 miles to be driven over the life of the typical three-year lease.

Consumers just need to understand that if they get more miles, they have to pay for them, since higher mileage reduces the value of the car at the end of the lease, and the residual value of the car is a big factor in determining the cost of the lease. Hall's point is, you'll get a better deal if you pay for those miles during the lease instead of at the end.

Hall's company Swapalease puts lessees who want out of their leases together with consumers who want to take over a lease. People who have a large surplus of miles, because they over-estimated their needs, may find it financially advantageous to trade in their lease before it's up.  

Quick and easy. Find an auto warranty partner now.