What Is An Excess Mileage Fee?

How Many Miles Am I Allowed To Drive My Leased Car?

Most car lease agreements stipulate the maximum number of miles per year a lessee is expected to drive his/her leased car. Oftentimes, if a lessee exceeds his/her allotted mileage, then at the end of the lease he/she will have to pay an excess mileage fee. This fee is usually between $0.10 and $0.30 for every mile a lessee drives over the limit.

You should check your lease agreement to see how many miles you can drive before incurring mileage fees, but most lease agreements allow a lessee to drive 12,000 or 15,000 miles for every year of the lease.

Excess Mileage Fee

Pretend that you sign up for a three-year car lease. Your leasing company expects you to drive your leased vehicle for an average of 15,000 miles per year, and it requires you to pay $0.20 for every mile you exceed your three-year mileage limit.

If you drive your leased vehicle 60,000 miles over the three years you will owe your leasing company for the 15,000 [15,000 = 60,000 – 15,000*3] miles by which you exceeded your limit. So, if you return your leased car to your leasing company, you will have to pay them $3,000 [$3,000 = 15,000*$0.20] for your excess mileage.

Why Do Leasing Companies Limit Mileage?

When you lease a car, you essentially pay for the car’s depreciation and your money factor. Depreciation is the value your leased car loses over the course of the lease while the money factor is the portion of your payments that compensates the leasing company for the use of its vehicle over course of the lease.

In order to calculate how much depreciation you have to pay for with your lease payments, your leasing company has to estimate how many miles you will drive the car because car depreciation is heavily influenced by mileage. So, your leasing company needs you to drive at or below your mileage limit in order for the lease to make financial sense for them. If you exceed your mileage limit and thus depreciate your car more than expected, your leasing company charges you a fee to protect itself from financial loss (and even to profit).

If you buyout your car lease, you will not have to pay an excess mileage fee because you will purchase the leased vehicle at its residual value, or the amount your leasing company expected the car to be worth at the end of the lease. In this case, you get to keep your car and avoid a mileage fee.

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