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What are end-of-contract charges and how can you avoid them? Nationwide Vehicle Contracts has the answers...

Car and van leasing offers many benefits including fixed monthly rentals, flexible contract and mileage terms and the option to renew your vehicle every 2 to 3 years (subject to status) but many customers are reluctant to take the leap into leasing because they are worried about hefty end-of-contract charges.

But what are end-of-contract charges and how can you avoid them? To help ease some of your worries, Nationwide Vehicle Contracts has put together a short guide on the most common end-of-lease charges and what you can do to ensure you are not issued with a bill by the finance provider at the end of your lease agreement.

What are End-of-Contract Charges?

End-of-contract charges are additional fees or charges issued by the finance provider at the end of your lease agreement. They come into play if your vehicle is returned in a poorer condition than when it was leased to you (subject to fair wear and tear), if it has completed more miles than originally agreed, or if it is returned earlier than agreed.

When you lease a vehicle on a Personal Contract Hire or Contract Hire agreement, the finance provider base your monthly rentals on the residual value of the vehicle and the term and mileage of your contract. If your vehicle is returned in a different condition than originally estimated (and thereby contracted for), then its value may be lower. This is when end-of-contract charges may apply. These charges reflect any discrepancy in the estimated and actual value of the vehicle.

End of Contract Charges come about as a result of:

Let’s take a closer look at each of these in detail.

Fair Wear and Tear

When you return your lease vehicle at the end of the contract, it must be in an acceptable condition inside and out. Although some fair wear and tear is accepted, any damage deemed to be outside of fair wear and tear will incur a charge.

"Fair wear and tear is the natural deterioration that occurs to a car or van as a result of normal use throughout the period of its lease. It is not to be confused with damage caused by an accident, negligent behaviour or poor treatment."

Each finance provider has its own set of fair wear and tear guidelines, broadly based on the BVRLA’s general guidelines. You must follow the specific guidelines set by your finance provider to ensure you avoid any unexpected costs at the end of your lease contract.

Fair wear and tear guidelines are the same for both cars and vans, but there are extra elements that apply to vans and commercial vehicles such as damage to the loading area, graphics and decal removal and roof fittings.

Before you return the vehicle, you are advised to check your fair wear and tear guidelines, and especially take notice when it comes to: 

  • General appearance and road safety
  • Documentation and keys
  • Paintwork, body, bumpers and trim
  • Windows, glass, door mirrors and lamps
  • Tyres and wheels
  • Mechanical condition
  • Vehicle Interior
  • Equipment and controls

Damage to wheels and trims, chips or dents on the bodywork, scuffs, scratches and scrapes to the paintwork and any rips, burns or holes in the vehicle’s seats will all need to be rectified prior to return, or you will face charges to rectify them from the finance provider.

On the day of collection, a qualified inspector will complete a full visual inspection of the vehicle and will assess its condition. Any damage deemed outside of fair wear and tear will be noted on a condition report, along with the cost of repairing the damage or replacing any missing items.

Some of the most common problems that result in customers having to pay lease-end penalty charges include:

  • Damage to wheels and trims
  • Chips or dents on the bodywork
  • Scuffs, scratches and scrapes to the paintwork
  • Rips, burns or holes in the vehicle’s seats

If you do not agree with the inspectors report, you will need to note the detail of your disagreement on the document provided. This will not remove or reduce the cost of the damage but will prompt a review process by the finance provider. Here, a damage team will look to see if the damage in the imagery provided matches the recharge cost quoted and whether the charges will stand. If not, the costs may be removed.

The easiest way to avoid penalty charges is to keep on top of the vehicle’s maintenance and appearance throughout your lease period, including regular cleaning of both the interior and exterior.

Visit our Maintenance section for more helpful advice and tips on caring for your lease vehicle.

Excess Mileage

When taking out your lease agreement, it is important to be honest about your annual mileage at the start because if you exceed your chosen mileage, you will be required to pay an extra amount calculated based on how many additional miles you have done.

As a car gets older, it depreciates in value and the more miles it has on the clock, the greater that depreciation. When you take out a lease on a car, you agree to a set mileage allowance over the period of the lease, with a cost built into your monthly cost agreement - the more the mileage allowance, the greater the cost.

The annual mileage allowance is there so that the finance company funding your lease car can estimate a resale value once the lease period is over. If you exceed the mileage allowance on your lease vehicle, any mileage over the agreed amount will be charged at the pre-agreed excess mileage rate per mile.

The excess mileage rate is stated on the leasing contract and can differ from finance company to finance company. But, for example, if the excess stated in your agreement is 5p per mile, and you exceed your mileage allowance by 1,000 miles, you would be charged £50 at the end of your lease.

It is important that you keep on top of your mileage throughout the contract to avoid these charges. If your circumstances change throughout the duration of your lease, such as if you move further away from work or if you need to use the vehicle more than you thought you would, it's a good idea to see if a mileage extension is available to you. Our handy Amending the Mileage on your Lease Vehicle guide should help.

Early Termination

Finally, another end-of-lease charge worth bearing in mind relates to Early Termination. This is when a customer returns the vehicle to the finance provider before the end of the contracted term. A fee is charged by the finance provider for ending your contract early however Nationwide Vehicle Contracts do not charge an additional fee for obtaining an Early Termination quote on your behalf.

Early Termination is at the discretion of the finance provider and is not available on all contracts, with some funders charging a fee of between 50%-100% of outstanding rentals and others calculating a fee on a case-by-case basis.

It is worth noting that Personal Contract Hire agreements cannot be early terminated unless £1500 inc VAT of rentals have been paid and for Finance Lease agreements, the sale details, vehicle mileage and payment for the amount equivalent to 2% of the gross sale price will be required in addition to the payment for the Early Termination charge.

Of course, Early Termination may be unavoidable due to changes in work or personal circumstances but it is advised that you think very carefully before cancelling the agreement and find out exactly what these total costs would be. Find out more in our Ending Your Lease Contract Early guide.

Still have a question regarding end-of-contract charges? Leave a comment below or call Nationwide Vehicle Contracts on 0345 811 9595 to speak to one of our experienced sales advisers.