How Car Lease WorksLeasing (a car) allows the user to temporarily have and use the item at an agreed fee for the fixed period stated in the lease/use agreement. Leasing is an alternative to purchasing. It offers businesses and individuals the use of the vehicle without the cash outlay. It affords a tax benefit for businesses as well as relieves the lessor of depreciation and responsibility for repairs when the manufacturer’s warranty expires. For the dealership, leasing generates repeat business as lessors return leased vehicles and either purchase them or lease new models.

At the end of the lease term, either the residual must be remitted to purchase the vehicle or the vehicle must be returned to the dealership or leasing company. The residual or residual value is the portion of the vehicle’s value that remains at the end of the lease, and must be paid to purchase the lease/vehicle.

A lease return procedure is followed when the lessor chooses not to purchase the vehicle. The lease return process typically begins with a phone call from the dealer or leasing company to the lessor approximately 90 days before the lease term actually ends. The lessor is advised to schedule a (free) lease-end inspection appointment.

1. Should You Have a Pre-Inspection Before Turning In The Leased Vehicle?

When a vehicle lease expires it is expected the car will be returned in “good condition.” It is implied the car will not have severe damage or significant wear and tear. The degree of wear and tear varies from inspector to inspector, and is defined by each particular leasing agreement and company. Damage beyond what is considered minor, however, is the responsibility of the lessee to repair. While small dents may cost several hundred dollars, more severe accident damage can run into thousands.

Pre-inspections provide lessors itemized reports of damages and significant wear and tear, and charges the lessee can expect to pay to repair the cited defects. A second inspection should be scheduled after the recommended and necessary repairs are made. If the lessee chooses not to have a pre-inspection performed, they should be prepared to remit charges for excess mileage, damage, and excessive wear and tear when they return the vehicle.

2. Preparing for the Lease Inspection

Before returning the leased vehicle, have its overall condition professionally evaluated to determine if there is any significantly chargeable wear and tear, damage, and/or excess mileage. The pre-inspection identifies defects and allows time to process insurance damage claims or make the needed repairs. Prepare for the pre-inspection by thoroughly cleaning the leased vehicle inside and out. Put the Vehicle Inspection Report (VIR) in the leased vehicle’s glove compartment and contact the lease rep to schedule a vehicle return appointment.

3. What Do Lease-End Inspectors Look For?

Typically the manufacturer’s independent inspection team checks for damages, neglected general maintenance, and conditions considered beyond “general wear and tear,” such as:

• Dents, dings, scrapes, scratches
• Cracks or extreme pitting
• Significant tire wear or tires that do not match
• Mechanical and electrical issues
• Broken/burned out lamps, turn signals, lights
• Interior rips or stains, cigarette burns, or missing, lost, or broken items (i.e.: head restraints, safety belts, cigarette lighters, etc.)

The inspector provides a computer-generated, itemized list of charges for the lease car with damage.

4. What Is Excess Wear and Tear?

The manufacturer’s inspection team follows parameters set by the company that determine what qualifies as “excessive” or significant wear and tear. Typically, excessive wear and tear and use limits include:

• four or more dings, scratches, and/or dents, larger than 4” diam., per panel,
• any chipped, cracked, or broken glass,
• any cracked or broken headlight, taillight, or marker,
• wheels that have gouges or scratches greater than 6”,
• tires that are mismatched or have sidewall damage or plugs or exposed cord belts,
• three or more (interior) burn holes per panel or any that exceed 1/8” diam.,
• two or more (interior) stains per panel or which are larger than 1/2” diam., and
• three or more (interior) rips/tears per panel or that exceed 1/2” diam.
Inspectors also consider poor quality repairs and electrical or mechanical malfunctions as chargeable wear and tear and use.

5. How Is Excess Mileage Determined?

Miles driven in excess of those allowed by lease agreement will incur an additional charge when the leased vehicle is returned. Excess miles are those that remain after the total allowed mileage is subtracted from the final odometer reading. The total allowed miles include any additional miles purchased through the lease agreement.

To estimate how much additional charge will be assessed for excess mileage multiply the excess miles by the cost per mile designated in the lease agreement.

6. Turning Your Lease Return Into Cash

Lease equity, on the other hand, is the increase in the end-of-lease value (over the estimated begin-lease buyout) when the end mileage is less than the allotted mileage. In many instances this positive trade value (lease equity) may be used as a down payment on another lease or vehicle purchase. Have the leased vehicle valued to determine its worth compared to the buyout before you turn it in, keeping in mind that vehicle’s condition also contributes to its overall value.

7. How to Return a Leased Car

Additional charges will be assessed when the lessee fails to complete the lease-end transactions by the lease-end date stated in the leased vehicle agreement. The leased vehicle must be returned to the lease rep at the (originating) dealership. Final mileage, damage, and wear and tear inspections are made and all keys and key fobs are turned into the lease rep. It is extremely important to properly complete all phases of the turn-in transaction process, including turning in all receipts for any repairs or replaced items the lessee made during the lease period.

All lease obligations must be fulfilled before the lessee is released from lease responsibilities.

• All remaining financial obligations must be satisfied.
• The lease rep’s review of, and notes made on, the VIR, including review and confirmation (by signature) of the Odometer Statement, as required by federal law, should be observed by the lessee.
• Ensure the lease rep records the correct end-mileage on the VIR.
• The lease rep’s notes pertaining to any repairs the lessee made during the lease period should be reviewed and confirmed by the lessee.
• Ensure both the lessee and the lease rep sign the VIR.

The signed VIR serves as confirmation the leased vehicle has been returned and accepted in accordance with the terms and conditions of the lease agreement. Failure to get a signed VIR receipt confirming return can result in the lessee being responsible for any excess mileage and/or damages identified after the vehicle is turned in. Some states also require the license plate be returned at the end of the lease period.

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8. What Should You Bring When You Return a Leased Car?

Include service records and the vehicle’s Owner’s Manual, in addition to both sets of keys, when the leased vehicle is turned in. Also, remember to remove personal items from the vehicle, such as:

• those behind and under the seats, above the sun visors, and in the glove compartment, consoles, etc.,
• individual and media devices such as sunglasses, DVDs and headphones, CDs, MP3s, etc.,
• aftermarket wheels,
• garage door openers, and
• parking and handicap passes and toll stickers.

Any item that was on or included with the vehicle when it was leased must be returned when the vehicle is turned in. This includes, but is not limited to:

• the navigation memory card,
• tool kit, cargo or tonneau cover, and luggage crossbars,
• floor mats,
• the original wheel rims (installed at the time of the lease) and spare tire and tools,
• third-row seat (that may have been removed/stored), and
• hybrid or electric vehicle accessories such as charge cords.

9. Other Charges That Are Assessed When the Leased Vehicle Is Returned

When it is included in the lease agreement, a lease disposition fee is assessed when the leased vehicle is returned. The disposition fee helps cover associated lessor processing costs.

The leasee may decide to have a vehicle pre-inspection made to determine what defects might need to be corrected or repaired. Repairs made prior to returning the vehicle helps avoid excess use and wear and tear charges. Vehicle insurance may cover some damage (considered excess wear and tear). Sufficient claim processing time as well as time needed to complete the repairs should be allowed. It is important to complete all repairs before the end-lease date.

The leasee may incur additional charges for welds that are different from the original ones on the vehicle when it was built. Charges may also be assessed for substandard touch-up or repainting. Welds with rough edges are considered to have excessive wear and use.

Small scuffs can typically be buffed-out and may not incur additional charge. However, repair fees with be charged for any dent that diminishes the vehicle’s structural integrity.

10. Lease Return Tires

Tires naturally show wear over a 3-year lease period. It is expected the leasee will replace the tires during the term. An excessive use fee is typically charged by the manufacturer at the end of the lease if the tires show wear rather than having been replaced. To avoid end-of-lease fees, manufacturers suggest replacing tires after the second year of a 3-year lease.

11. What To Do When Lease – End Charges Don’t Seem Fair

Lease-end inspections and excessive wear and use report charges may be contested when they appear inaccurate or unfair. The charge(s) in question should be protested directly to the leasing company. The charges may be reduced, or waived entirely, as a result.

It is important for the company to create and maintain customer loyalty to the brand as well as to the company and/or dealership. Customers that are treated fairly will be loyal to the company/brand. They also tend to endorse the service and encourage new customers via word-of-mouth. The manufacturer is also more likely to waive repair costs or reduce charges and fees when they know the customer has a history of, or will continue leasing (or purchasing) from them.

12. What Is the Benefit of Obtaining a Lease Extension?

A lease extension may be permitted when repairs cannot be completed before the end-lease date and no replacement vehicle has been gotten. It is important the lease extension is covered by a lease extension document. Both parties to the agreement should e named as well as the dates when the extension begins and when it ends. The original lease agreement that is being extended must be referenced. Lease payments can change under the lease extension.

13. Can I Return My Leased Car To Any Dealership?

It isn’t uncommon to change towns or states during a 3-year lease. When returning a leased car to a different dealer than the one that originated the lease is not convenient, the vehicle may be returned or purchased through a local, participating dealership that sells and leases the same brand. The local dealership’s customer service should be contacted to schedule an appointment prior to returning the leased vehicle.

14. Considering Lease-End Options?

You have three options when it’s time to return your leased vehicle:
Return Your Lease Vehicle – Return the leased vehicle to the dealership that originated the lease. Various fees and (excessive wear and tear) charges may apply.
Buy or Lease a New Vehicle – Return the leased vehicle and purchase a new vehicle or return the leased vehicle and lease a new vehicle.
Purchase Your Lease Vehicle – Purchase the leased vehicle by fulfilling the lease obligations and pay/finance the residual.

15. Deciding to Purchase the Leased Vehicle?

There are benefits to financing/purchasing your leased vehicle. Mileage limits and excess use and wear charges cease, and each vehicle payment builds future trade-in equity.

Before lease-end, ask the originating dealer for the vehicle’s purchase price, including taxes and other fees and charges. If the vehicle qualifies, it may be purchased as a Certified Pre-Owned vehicle. All remaining financial obligations must be satisfied and the Odometer Statement must be signed. The lease-end transaction must be completed by the lease-end date, or result in additional charges.

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