Paying excess mileage charges when an auto lease ends is something most consumers take care to avoid. But many of these same careful lessees get an unhappy surprise at turn-in because of other charges and costs they failed to think about. Carefully considering things such as best length of lease and residual value and then taking a few simple steps at the beginning of the lease and during the lease term can pay big dividends when the lease ends. The first thing is to read the lease document carefully and clearly understand the sections covering excess mileage, wear and tear, and processing fees. Then consider what steps you can take to avoid charges when the auto is turned in. What you consider minor dings, dents or scratches can end up costing you a lot. “When you lease a car, the sticker shock comes at the end, not the beginning,” said Jack Gillis, a spokesman for the Consumer Federation of America and author of The Car Book, a buyer's guide.

A Changing Market

Consumers love auto leasing because it offers an easy way to get into a new car with a lower down payment and lower monthly payments than financing a vehicle to be purchased. This is because the lessee is only paying for the amount of the car's value that is used. Typically, people lease for three years, so they only pay for the first three years of a car's life — which are definitely the car's best years. Before tighter credit and lower residual values, car dealers also loved leasing because it brings customers back into the dealership at the end of the lease, every two or three years. Also, because many consumers are confused by leasing terms, dealers can more easily take advantage of them. Particularly in difficult economic conditions, leasing companies are looking for every way possible to improve their revenues. Unfortunately, leasing which was once a way for car dealers, customers, and manufacturers to all get a decent deal is the latest victim of the economic downturn. Chrysler, Ford, BMW, GMAC and several major banks have announced reductions, if not complete elimination, of lease programs. Automobile dealers and experts expect more to follow. So a consumer who leased in the past should not assume the same rules apply today. These changes and tighter credit conditions make it more difficult to lease and have caused leasing companies to be more stringent in their lease-end requirements. Lease contracts typically run 24 to 36 months, and consumers usually turn in their vehicles at the end of the term. That leaves the auto maker on the hook to sell vehicles that may have declined significantly in value compared to assumptions made at the time the original lease was signed. And that means lessors are going over returned vehicles with a fine-tooth comb to get all the extra charges they can.

Major Problem Areas

Unexpected shocks and charges at turn-in are primarily associated with three areas of the lease, according to industry reports. Disposition fee: This is a charge levied by the leasing company if the lessee chooses not to buy the vehicle at the end of the lease. This fee is set as compensation for the expenses of selling, or otherwise disposing of the vehicle. It typically includes administrative charges; the dealer’s cost to prepare the car for resale and any other penalties. Lessees need to make sure this fee is stated clearly in the contract and is agreeable before signing on the dotted line. At lease-end, the lessee is left in no position to negotiate as the dealer can apply the refundable security deposit towards this fee. Excess mileage charges: Almost all leasing companies will charge a premium for each mile over the agreed upon mileage stated in the contract. This penalty can be as high as 25 cents per mile and can add up quickly. To avoid the risk of running thousands of dollars in excess mileage penalties at the end of the lease, always check the “per mile” charges in the contract and be realistic about mileage before signing any contract. If the limit is unrealistic given the lessee’s driving needs, then negotiate with the dealer to get a higher mileage contract. Excess wear-and-tear charges: Another potential major cost at the end of the lease is any incidental damage done to the car during the lease. This is deemed any excessive damage done to the normal tear and wear of the vehicle. Notice the use of the terms “deemed”, “excessive” and “normal”. There is no standard formula to define what’s “excessive” and “normal” and it’s up to the leasing company to assess – or deem – the damage and determine what they are going to charge. This leaves the lessee at the mercy of unscrupulous leasing agents who set stringent tear-and-wear standards. Dings, dents, scratches and windshield chips are a major area of unexpected large charges. Lessees need to carefully read the description of these standards, understand them and agree to them. If the leased vehicle is damaged prior to the end of the lease, the lessee may find it cheaper to repair the damage than pay the excessive charges of the leasing agent.

How Do You Avoid Extra Charges at The End of The Lease?

Many consumers are anxious about leasing's Judgment Day — when the vehicle is returned to the dealer and its condition is inspected for extra charges. At the top of problem areas discussed above are excess wear-and-tear charges. These fears are not unfounded, according to Tarry Shebesta, president of Automobile Consumer Services Corp., “As the leasing market tightens up, banks are looking for a way to make money from returned cars. They will be more critical about wear and tear and any deviations from the lease contract.” Bottom line: Keep the car at a condition above and beyond “average wear and tear” to avoid penalties.

10 Ways to Save Money at Turn-In

Here are ten useful tips to keep in mind before and during the lease to prevent dings to your wallet as you say goodbye to your leased vehicle: 1. Choose a car with a naturally higher residual value. If the vehicle holds its value — or surpasses its expected value — there may be an option to buy it and make money at the end of the lease. This is particularly important in market conditions where the residual value of certain types of vehicles is dropping dramatically. 2. Don't go into a lease longer than you would normally keep a car. If you keep a car about three years, do a three-year lease. A four- or five-year lease will be harder to get out of and more difficult to turn in without extra fees. Don't lease longer than the warranty period that covers the car. 3. Purchase auto lease protection at the beginning of the lease. Cigarette burns or tears in the upholstery, certain dents, scratches, windshield chips and mechanical flaws can cause big charges if the leasing company considers them beyond normal wear and tear. Auto lease protection covers repair of dings, dents, scratches and stone chips that occur during the term of the lease. 4. Stay within the mileage limit. The best way to avoid having to pay for excess mileage is to take the time to estimate how much you will drive the car, including any weekend and holiday use, before you sign the lease. Then purchase extra miles up front. Typically, it is less expensive to do this than to pay extra mileage at the tail end of a lease. If you have really high mileage fees, consider selling the car yourself rather than paying the penalty. 5. Treat the car like it was your own. Elaine Littwer, legislative coordinator of the National Vehicle Leasing Association, says that it’s important for consumers to understand that damage reduces the resale value of a vehicle. “The 'I don't own it and I don't care' attitude ends up costing them money.” 6. Have the vehicle washed and detailed on a regular basis. Maintaining the vehicle’s appearance conveys that it has been well cared for. 7. Make sure the vehicle is serviced at the required intervals. Keep all maintenance records to provide proof of service and repairs. 8. Document the condition of the car. Research by Tom Incantalupo of Newsday recommends that, just before turning the car in, lessees take clear photos of the interior and exterior, including the odometer, for their own records should a dispute arise over mileage driven or whether specific damages are excessive - and also to protect themselves against damages that occur after the car was turned in. 9. Have the vehicle serviced just before you turn it in. This will ensure that it has no major problems and will provide a final third-party record of condition. 10. Any dents should be removed by a body shop rather than turning the car in with the damage. Repair charges covered by lease protection or paid privately are not subject to some of the expensive mark-ups charged by leasing companies. Following these simple steps and Investing a little time and money during the course of your lease can ensure your peace of mind and protect your bank account when your leased car’s Judgment Day arrives.