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What happens at the end of a car lease?

March 24, 2023

What happens at the end of a car lease 

You’ve probably had your leased car for a while now and you’re wondering what happens once the lease period comes to an end. 

Maybe you’re tired of driving the same car for so long and you’re thinking if there are better options out there that allow you to own a brand-new vehicle and not be bound by a contract for years. 

Fortunately, there are better and more flexible solutions compared to regular leasing, and in this post, you’ll learn everything you need to know about your options once your car lease comes to an end.

But first, you must understand what type of lease is applicable to you.

Types of car lease

Personal contract hire (PCH) 

With PCH you won’t own the vehicle at the end of the leasing period, you’re responsible for the vehicle’s damage, and you also need to estimate your annual mileage precisely if you don’t want to pay excess-mileage fees. 

Personal contract purchase (PCP)

PCP is a more complex leasing plan because you could decide to own the car at the end of the contract. A personal contract purchase is a long-term rental plan that allows you to drive the car until the contract ends. Once the term ends, you can:

  • Return the car
  • Pay the resale value and keep it
  • Use the resale value towards buying a new vehicle

On top of that, if you decide to keep the car at the end of the contract, you’ll also need to pay what’s called a balloon payment.  A balloon payment is a final payment you’re required to make based on the future value of the vehicle, which is estimated at the start of the agreement.

Contract hire (or operating lease)

With an operating lease, you’re renting a specific vehicle for a set period of time that can sometimes be extended, but you don’t have ownership over the car once the contract is over. 

What to expect when returning a leased car

Once your leasing contract has ended, you will have to hand back the vehicle to the provider.

As long as the vehicle is in good condition (subject to wear and tear) and the mileage is within the expected range, you won’t run into extra fees. 

Generally, you’ll be contacted by the leasing company in advance to arrange the vehicle collection.

To avoid unpleasant surprises in the form of extra costs, we strongly advise you to keep an eye out for a few things that drivers tend to overlook. When inspecting your vehicle you should generally look for:

  • Various chips, scratches, and dents on the exterior of the car.
  • For the interior, check for stains, tears, and ensure all equipment works as it is supposed to (radio, SatNav, etc.).
  • Thoroughly clean both the interior and exterior of the vehicle prior to handing it back.
  • Remove all your personal belongings from the vehicle.
  • Prepare the necessary paperwork in advance.

Inspectors from leasing companies will look for every minor detail, so we advise you to check for these issues beforehand because wear and tear charges can be quite high.

Although wear and tear checks can be pretty meticulous, some form of damage is acceptable, especially if you’ve driven the car for years. 

However, there are some unacceptable wear and tear that you will likely be charged for such as:

  • Chips and visible damage on the windscreen glass.
  • Tyres with a tread depth of less than 1.6mm.
  • Multiple deep dents on a single panel of the exterior.
  • Permanent stains to the upholstery.

Wear and tear charges

Wear and tear charges can vary greatly based on the gravity of the damage and the leasing company you have an agreement with.

Generally, you should always inform the car-leasing provider of any damage that you cause to your car. 

When the company’s inspector finds unacceptable wear and tear damage, they will point it out and you'll be sent an invoice for the assumed cost of repair. 

Once you get the invoice you have a few choices:

  • You can request a second inspection.
  • You can contest the charges.
  • You can try reducing the costs by taking the vehicle to a repair shop.

If you are aware that your leased vehicle has some serious damage, your best bet is to repair the vehicle on your own before the official inspection. 

There’s no guarantee the inspector will find all your fixes to be satisfactory, but you might be able to reduce the costs. If, for example, your tyres are damaged, buying new ones that you choose may be a much cheaper option than getting charged a hefty price for whatever the leasing company decided to put on.

What about excessive mileage?

Another big issue that drivers don’t pay nearly enough attention to is the contract mileage. 

Exceeding the contract mileage will result in extra fees and you should always notify the leasing company beforehand if you’re too close to the agreed limit. 

The best tip we can give you is to always evaluate precisely your yearly mileage and allow wiggle room.

You can make a rough estimate of your yearly mileage by measuring your monthly average and multiplying it by 12. Generally, most car lease agreements have an annual mileage limit of anywhere between 5,000 and 15,000 miles per year, however, you could extend this limit to 40,000 miles per year.

Excess mileage charges vary depending on the leasing company, but they typically range from around 3p to 30p per mile. 

Mileage extension

One option to consider is buying extra miles for your leased car. If you find yourself with a few miles remaining, you could ask for extra mileage, which most leasing companies allow. 

This practice is called mileage extension and is considered a formal change to your lease agreement. If you decide to extend your annual mileage, the lease company will issue you new documentation and calculate a new monthly rental based on the extra miles you requested. 

Some finance providers may allow you to reduce your annual mileage mid-way through your contract if you think you won’t make use of the initial mileage you agreed upon, so it’s always a smart idea to get in touch with your leasing company if you find yourself in trouble. 

Car a car lease be terminated early?

The short answer is yes, you can terminate your lease early if you’re not happy with the service, you want a different car, or you simply don’t want a car anymore.

However, the costs involved with early termination are very high and we generally advise against that. 

If you decide to go through with early termination, you should read the terms and conditions of each specific contract.

Our recommendation is to get in touch with your leasing company to discuss the subject and possible alternative options, such as reducing monthly payments. 

Other possible solutions to get out of a car lease are:

  • You can buy out the car by paying a balloon payment and any additional charges.
  • You can roll your payments into a new car lease if the reason why you want to terminate the contract is that you got tired of your current vehicle. Discuss this option with the leasing company as most of them allow it, but keep in mind that rolling out a payment into a new car will likely increase the monthly payments on your new lease. 
  • You could transfer the lease to someone else if you simply don’t need to own a car anymore. In fact, many leasing companies allow for a transfer and this is generally the most cost-effective way to get rid of your leasing contract if you have someone interested in the deal.

Can a car leasing agreement be extended?

Generally, extending the car leasing contract is possible and most finance providers allow it. Whether you can extend the leasing contract or not depends on both your leasing company and the type of agreement you have. 

There are two types of lease extension practices:

Informal extension

As the name suggests, this is an informal agreement between you and the financing provider in which you can continue using the leased vehicle beyond the contract end date. The informal extension is a short-term solution and few leasing companies agree to do it for the obvious risks involved, as this agreement is not officially stated in the contract. On top of that, the leasing company can recall the vehicle at any time during the informal extension.

Formal extension

On the other hand, a formal extension modifies the initial agreement and allows you to use the leased vehicle for an extended period of time, usually between 6 and 12 months. Also, the extended-term date will typically increase the monthly charges and you’ll need to pay extra admin fees too. Unlike the informal extension, with the formal one, the leasing company can’t recall the vehicle at any time.

Car subscription is a sensible alternative to car leasing

If you’re coming to the end of your car lease and are looking for an alternative, consider a car subscription.

At Drive Fuze, our monthly car subscriptions are all-inclusive. This means your monthly payments cover both your use of the vehicle and associated costs such as fully-comprehensive insurance, tax, servicing, maintenance, and breakdown cover. All of this is factored into just one easy monthly payment with no long-term commitment - giving you the ease, value, and flexibility a traditional lease can’t offer.  

Take a look at our range of cars and sign up for your car subscription today and experience the freedom of a Drive Fuze car subscription.