6 Feb 23

5 ways to minimise end of lease costs

With fleet budgets under pressure, follow these steps to eliminate unexpected charges at the end of contracts.

The much-promoted fixed costs of full service leasing can swiftly unravel at the end of a contract, without careful management. This can add hundreds, and even thousands, of unbudgeted Euros in extra charges to the total cost of a lease. This has not been an issue for the past 18 months due to the strength of residual values, which have allowed leasing companies to take a generous approach to end-of-contract charges, but as the supply of used vehicles starts to rise, leasing companies are likely to pay closer attention to the condition of returned vehicles.

1. Avoid early termination charges

This is one of the most frustrating costs for fleet managers, a charge (that feels like a penalty) for vehicles returned before their scheduled term because an employee has left or been made redundant. Some procurement departments now negotiate precise matrixes of how early termination fees will be calculated, but better to avoid them completely by reallocating vehicles to new employees or drivers whose lease contract has been extended. Alternatively, some fleets are reassigning these vehicles to a ‘pool’ where they can be used (and recharged to departments) instead of rental hire cars.

2. Monitor mileages

Different sales and service territories, as well as private mileages, mean two identical vehicles performing ostensibly the same task, can accumulate very different mileages. Swapping these vehicles between drivers, mid-contract, helps to minimise the risk of one vehicle significantly exceeding the mileage thresholds of its contract, and incurring excess mileage charges.

3. Negotiate mileage pooling

Leasing companies may commonly charge for excess miles, but few offer rewards for under mileage vehicles. Mileage pooling balances out under and over mileage vehicles, allowing low mileage vehicles to offset high mileage vehicles, thereby reducing the risk of end-of-contract charges.

4. Escape wear and tear costs

Leasing companies should all publish clear definitions of acceptable and unacceptable wear and tear, alongside the charges they will impose for damage to a vehicle (whether they decide to repair it or not). It is vital that drivers understand these terms and report vehicle damage that might lead to charges. Some businesses will recharge some or all of the cost of repairs to drivers, while others will arrange for vehicles to be repaired before they are returned to the leasing company, in order to pay no more than the actual cost of repair.

5. Negotiate formal contract extensions

The interest payments, depreciation and maintenance elements of a lease change fundamentally when a vehicle enters a period of contract extension. In theory, interest payments and depreciation costs should fall, while maintenance expenditure is likely to rise. Overall, it is reasonable to expect that it is cheaper to lease a three or four years old vehicle than a new one, so negotiating a contract extension should lead to cheaper rentals than simply continuing the original monthly charges.

Image: Shutterstock

Authored by: Jonathan Manning