FRB: Vehicle Leasing: Leasing vs. Buying: Mileage

	Glossary
Leasing vs. Buying Mileage

Leasing	Buying
Most leases limit the number of miles you may drive (often 12,000 or 15,000 miles per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding the limit, if you return the vehicle.	You may drive as many miles as you want, but higher mileage will reduce the vehicle�s trade-in value or resale value.
Reasons for mileage limit. Vehicle leases include a mileage limit because the residual value is based on the expected mileage. Driving more miles reduces the value of the vehicle. Generally, excess mileage charges are the way lessors recover the expected decrease in value from the additional use. Reducing excess mileage charges. To reduce or avoid end-of-term mileage charges, consider negotiating the lease to include the extra miles you expect to drive during the term. The lessor will likely reduce the residual value to reflect the higher expected mileage. This reduction will increase your monthly payment and decrease the likelihood that you will have to pay an end-of-term charge for excess miles. Some lessors refund the charge for any extra miles you purchase above the standard 15,000 miles per year if you don�t drive the extra miles. Excess mileage charges typically range from 10 cents to 25 cents per mile. The higher charges are often on more expensive vehicles because the decline in value for these vehicles is generally greater than for less expensive vehicles. It often costs less for you to negotiate a higher mileage limit for your lease (thereby increasing your monthly payment) than to pay for excess miles at lease-end. Increasing your mileage limit and your monthly payment can reduce or eliminate large (and often unbudgeted) end-of-term expenses. A higher mileage allowance, and the resulting lower residual value, should reduce the total rent charge because the average lease balance is reduced.	Effect of more miles. If you drive more miles than you expect, you will not owe the creditor for an excess mileage charge, but the vehicle will be worth less when you trade or sell it. Effect of fewer miles. If you drive fewer miles than you expect, the vehicle will usually be worth more when you trade or sell it.

Leasing

Buying

Most leases limit the number of miles you may drive (often 12,000 or 15,000 miles per year). You can negotiate a higher mileage limit and pay a higher monthly payment. You will likely have to pay charges for exceeding the limit, if you return the vehicle.

You may drive as many miles as you want, but higher mileage will reduce the vehicle�s trade-in value or resale value.

Reasons for mileage limit. Vehicle leases include a mileage limit because the residual value is based on the expected mileage. Driving more miles reduces the value of the vehicle. Generally, excess mileage charges are the way lessors recover the expected decrease in value from the additional use.

Reducing excess mileage charges. To reduce or avoid end-of-term mileage charges, consider negotiating the lease to include the extra miles you expect to drive during the term. The lessor will likely reduce the residual value to reflect the higher expected mileage. This reduction will increase your monthly payment and decrease the likelihood that you will have to pay an end-of-term charge for excess miles. Some lessors refund the charge for any extra miles you purchase above the standard 15,000 miles per year if you don�t drive the extra miles.

Excess mileage charges typically range from 10 cents to 25 cents per mile. The higher charges are often on more expensive vehicles because the decline in value for these vehicles is generally greater than for less expensive vehicles.

It often costs less for you to negotiate a higher mileage limit for your lease (thereby increasing your monthly payment) than to pay for excess miles at lease-end. Increasing your mileage limit and your monthly payment can reduce or eliminate large (and often unbudgeted) end-of-term expenses. A higher mileage allowance, and the resulting lower residual value, should reduce the total rent charge because the average lease balance is reduced.

Effect of more miles. If you drive more miles than you expect, you will not owe the creditor for an excess mileage charge, but the vehicle will be worth less when you trade or sell it.

Effect of fewer miles. If you drive fewer miles than you expect, the vehicle will usually be worth more when you trade or sell it.

Next: Excessive wear

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Last update: May 5, 2003