More Information about Excess Mileage Charges

Most open-end vehicle leases include a mileage allowance (often 12,000 to 15,000 miles per year), and the residual value is based on this expected mileage. Driving more miles often reduces the value of the vehicle and increases the potential deficiency. Excess mileage charges are generally assessed only to the extent that, if you return the vehicle, the deficiency between the actual vehicle value and the residual value is greater than the sum of three base monthly payments. The three-payment rule may limit the lessor's ability to collect residual deficiency charges without bringing legal action. See glossary entry Open-end lease for information on the three-payment rule.

To reduce or eliminate the excess mileage component of your potential end-of-term deficiency liability, consider negotiating the lease to include the extra miles you expect to drive above the mileage proposed by the lessor. The lessor will probably reduce the lease residual value to reflect the higher expected mileage, which will increase your monthly payment. If you drive fewer miles than anticipated, the value of the vehicle will probably be higher than the projected residual value, which may result in a potential surplus that may be refunded to you, if stated in your lease agreement. If you are entitled to this surplus, you generally will not receive a refund for any unused extra miles that you have negotiated at the beginning of the lease. Example