So it’s your first time signing a lease agreement and you want to know exactly what you’re up against. Our guide is here to help you get a good grasp on your lease’s terms and conditions before you put that pen to paper.
Key Takeaways
- A lease agreement sets the terms of your lease, including how many miles you’re allowed to drive each year.
- Your agreement will allow for normal wear and tear, but you’ll need to cover the costs of repairs outside the definition of normal.
- If you don’t stick to your annual mileage limits, your lease agreement will tell you how much each extra mile will cost you.
- It’s important to understand your lease agreement so you can stay within its limitations (or know how much you’ll need to pay if you don’t).
What is a lease agreement?
When you’re leasing a car, you only pay for the vehicle’s depreciation. That’s because, at the end of your lease agreement, you’re going to give the car back to the dealership. You’re just borrowing it, in effect. The lease agreement helps ensure that you cover the costs of all the depreciation.
Your lease agreement will tell you how many miles you’re allowed to drive per year, for example, and also how much you have to pay if you go over that limit. It will also give you guidelines on what’s considered normal wear and tear, and what repairs you’ll actually need to cover out of your own pocket.
Wear and Tear
Provisions for normal wear and tear will be included in your lease agreement. After all, if you’re doing a healthy amount of driving, it’s only natural that both the interior and the exterior will weather some damage.
However, you may be charged for damages that are considered outside the purview of normal wear and tear. Should the lender determine such damages exist, you will be liable for those repairs.
Mileage Limits
Every lease agreement also includes annual mileage limitations. Every year, you’ll typically be allowed to drive somewhere between 10,000 and 15,000 miles, depending on what your contract says.
It’s important to read the mileage provisions carefully, because you’ll also need to know how much you’ll need to pay if you go over the mileage limits. Penalties may be anywhere from $0.01 to $0.15 per mile, or even higher! (Though, ideally, you would stay under the limits.)
Since you’re technically only borrowing the car before returning it to the dealership, the dealership wants to keep its value as high as possible. Therefore, mileage limits are an important aspect of your agreement.
Possible Penalties
Your lease agreement will also tell you how much you have to pay should you venture outside the terms of your agreement. There will be a specific penalty for going over the mileage limitations, for example. Since you don’t want to end up owing fees you can’t afford, it’s important to understand all of the penalties included in your contract.