For individuals who clock up significant miles on the road, the decision between leasing and buying a car can be particularly complex. If you’re someone who anticipates high mileage, a High Mileage Lease might be a more sensible option than purchasing a vehicle outright. Let’s delve into an example comparing a 100,000-mile lease to a standard mileage lease and a traditional car loan, using the popular 2018 Honda Accord LX sedan as our model. This comparison will illustrate the financial implications and flexibility offered by a high-mileage lease.
High Mileage Lease vs. Traditional Lease and Loan: A Cost Comparison
To provide a clear picture, we’ll examine the costs associated with different financing options for a 2018 Honda Accord LX sedan. The following table outlines the monthly payments and residual/payoff amounts at the 36-month mark for a standard 36,000-mile lease, a 100,000-mile lease (a high mileage lease), and a standard 60-month loan. These figures are based on a purchase in Los Angeles County, incorporating taxes, fees, and registration. The loan calculation uses a 5.74 percent APR, reflecting the average new-car finance rate in July 2018.
| 2018 Honda Accord LX Sedan |
|---|
| Lease/Loan Term |
| 36-month/36,000-mile lease |
| 36-month/100,000-mile lease |
| 60-month loan |
The Monthly Cost and Flexibility Factor
Opting for a high mileage lease, which allows for 100,000 miles over 36 months (approximately 33,000 miles per year), increases the monthly payment by $178 compared to a standard 36,000-mile lease. This brings the monthly cost closer to that of a traditional car loan for the same vehicle. While the monthly expense is comparable to purchasing, the crucial difference lies in the flexibility a lease provides at the end of the term. After 36 months, a lessee with a high mileage lease has the option to simply return the vehicle, offering an escape route if their needs change or they no longer desire the car.
Avoiding the “Upside Down” Trap with High Mileage
Consider the alternative: purchasing the vehicle with a loan and accumulating 100,000 miles in 36 months. After three years, if the owner decides to trade in their high-mileage Honda Accord, they might face an unwelcome reality. Using a used car appraisal tool, a 3-year-old Honda Accord LX with 100,000 miles might be valued at approximately $6,400 in average condition. However, as shown in the table, the remaining loan balance at 36 months is $10,078.
This scenario leaves the car buyer “upside down” or “underwater,” meaning they owe significantly more on the car than it is currently worth – in this case, nearly $5,000 more. High mileage is a significant contributor to this depreciation. Being upside down is a disadvantageous position, especially when looking to trade in and upgrade to a new vehicle. A high mileage lease strategically avoids this potential financial pitfall by aligning the lease terms with the anticipated high usage and depreciation.
The Impact of High Mileage on Car Value
High mileage is a major factor in vehicle depreciation. Cars with significantly higher mileage than average depreciate at a faster rate. This is because higher mileage is often associated with increased wear and tear, potentially leading to higher maintenance costs and reduced reliability in the future. While all cars depreciate, those driven extensively lose value more rapidly, impacting trade-in values and resale opportunities.
Conclusion
For drivers who consistently put a lot of miles on their vehicles, a high mileage lease presents a compelling alternative to buying. It offers a predictable monthly payment structure, similar to a car loan, but with the added benefit of flexibility at the end of the lease term. Crucially, it shields drivers from the rapid depreciation associated with high mileage and the risk of becoming upside down on a car loan. If you anticipate driving more than the standard mileage allowance, exploring a high mileage lease could be a financially sound and strategically advantageous decision.
