Is a High-Mileage Lease Right for You?

Imagine a friend asks you for some car-buying advice. She's already picked out the perfect new car and plans to put some serious miles on it. To complicate things, she likes to get a new car every few years. Your friend is torn between leasing her perfect new car or buying it with a traditional car loan. What advice would you give?

Conventional car buying wisdom says that high-mileage drivers should stick with purchasing because leases are made for people who don't rack up the miles. Drivers of leased vehicles can face huge charges if they exceed mileage limits. So your answer would be obvious: Buy the car.

And that's great advice, provided your friend is absolutely certain she'll keep the car long enough to pay it off.

However, it's not good advice if your friend thinks she might want to trade in her car before paying it off. If there is a chance she'll want something different before the loan is paid in full, she might be better off with a high-mileage lease instead of a traditional purchase.

The reason: depreciation and the prospect of being upside down on her car loan. We'll have an example a little later in this story.

The Little-Known Lease

If you've never heard of high-mileage leases, you're not alone. They are almost never advertised and, unfortunately, car dealership employees don't usually bring them up as an option. Still, a high-mileage lease is easy to get and could be a great option for a person who drives well beyond the usual limits of a lease.

Because very few things depreciate a vehicle faster than miles, a person who drives a lot in a short time will likely owe more money on the car than it is worth. That's a tough position to be in, especially if circumstances require a new car before the loan is paid off.

Mileage Limit Myths

Probably the biggest misconception about leases concerns mileage limits. Many car shoppers think that 12,000 miles per year is the maximum allowed. But that's rarely the case.

Most leases can be tailored for many more annual miles than the standard 12,000. Banks are often willing to let a potential car lessee sign up for as many as 100,000 miles to be driven over the life of the typical three-year lease.

These miles don't come for free, of course. And the uptick in monthly payments to pay for the extra miles can be substantial. However, when you agree on these extra miles at the beginning of a lease, the mileage costs are cheaper than end-of-lease excess mileage charges. This increase in payment, while not ideal, may also be easier to deal with than the prospect of trading in a high mileage car early on in the loan.

Show Me the Money

To show why getting a high-mileage lease might make more sense than buying a car and piling on the miles, here is an example of a 100,000-mile lease for a 2018 Honda Accord LX sedan, compared to a standard 36,000-mile lease and a standard 60-month loan for the purchase of the car.

This comparison uses the same selling price and down payment. The terms include taxes, fees and registration, based on a purchase made in Los Angeles County. The purchase payment is calculated using a 5.74 percent annual percentage rate, which was the average new-car finance rate in July 2018:

The freedom to drive 33,000 miles a year instead of the standard 12,000 would cost the driver in this leasing example an additional $178 per month. Once the monthly charge for the additional miles is factored in, a shopper who opted for this ultra-high-mileage lease would have a payment similar to that of a traditional car loan.

The difference is that at the 36-month mark, she'd have a measure of flexibility with the lease that wouldn't be available with a traditional purchase: the ability to simply walk away from the car if it no longer suits her needs.

After 36 months, the person who is buying the vehicle but is sick of it and wants another one would be in a very different situation. 

We used the Edmunds used car appraisal tool to assess the value of a 3-year-old Honda Accord LX in average condition, with an automatic transmission and 100,000 miles on the odometer: $6,400. We would expect the trade-in value the 2018 Honda Accord LX to be about the same.

But look at the remaining loan balance: $10,078. The buyer owes $5,000 more on the vehicle than it's worth, and the high mileage is partly to blame for the situation.

This is called being "upside down" or "underwater." No matter what you call it, owing more money on a car than the vehicle's worth is a bad spot to be in, especially if you're looking to trade in the car for something different. By planning ahead and seeking out a high-mileage lease, you'd avoid that situation.

Walk Away or Keep the Car?

Whether a lease is scheduled to end at 36,000, 60,000 or even 100,000 miles, the lease termination options are the same. At the end of a lease, the lessee can buy the vehicle for the residual amount. This is a great option for somebody who's still in love with the car, mileage aside.

For a driver who wants to move on to a different vehicle, terminating a lease is simple: Assuming that you haven't subjected the high-mileage car to unusual wear and tear, you just drop it off at the, fill out some forms and walk away. It doesn't matter that you've piled on the miles. The car is no longer your responsibility.

Worth a Look

The driver who enjoys the freedom of having no car payment and doesn't mind owning a car and driving it until the wheels fall off won't be interested in a new lease contract every three years. But for a driver who likes to drive the latest models, expects to rack up some significant miles, and doesn't want to commit to a long-term relationship with a car, a high-mileage lease is an option worth looking at closely.