What Happens When You Damage a Leased Vehicle?

It’s never good when a vehicle gets damaged, but it can be even worse when it’s a leased one, because it belongs to someone else. We have tips on what you need to know and what you need to do when a leased commercial vehicle gets damaged.

Why a Leased Vehicle Isn’t Considered Your Vehicle

A lease is essentially a long-term rental. The leasing company estimates what the vehicle will be worth at the end of the lease, and then subtracts that from its purchase price. The difference between those two amounts plus any fees is divided by the number of months of the lease to determine the monthly payment. You haven’t bought the vehicle, and so for the duration of the lease, it belongs to the leasing or financing company that has leased it to you.

Leased Vehicle Insurance

Very few leases include insurance, which means you’ll be covering the vehicle through your own insurance company. The lessor usually sets a minimum coverage requirement, so be sure your policy is in line with it. Depending on the amount of damage, the cost of repairing it, and your insurance deductible, you’ll have to decide if you want to make a claim to your insurance company or pay for it yourself.

What is Considered “Damage”

Lessors set out the terms for the vehicle’s acceptable condition at the end of the lease. Crash damage is obviously not in that definition, but what is acceptable may differ from what you’d expect it to be. The truck or van will have to be returned within a specific mileage, or you’ll face a penalty. It also can’t be beyond normal “wear and tear.” 

There’s usually a bit more leeway with commercial vehicles than with consumer leases, since work trucks are meant for work, but there will still be limits. It’s possible that scratches or dents, seat wear, or tire tread depth that you consider acceptable on a work vehicle may not be seen the same way by the leasing company. Make sure you know the condition the truck must be in when the lease is up.

Damage to Vehicle Parts

The leasing company will look for chips or cracks in the windshield, dents or heavy scratches in the body, the condition of the tires, wheels with curb damage or corrosion, upholstery that is excessively worn or torn, broken interior items, and anything that can indicate a lack of vehicle maintenance. If it’s something you look at when buying a used vehicle, it’s something your leasing company is going to look at with your leased vehicle.

Excessive Wear-and-Tear with a Returned Vehicle

If the vehicle isn’t within the lessor’s limitations, you’ll face a financial penalty. How you handle it is up to you. You can let the leasing company take care of the repairs and then you pay for that; or you can get it done yourself at a body shop. Figure out which one will cost you less, including your time to get everything organized. 

Depending on the type of lease you have and the cost you’ll be charged for the damage, you may want to consider buying the vehicle rather than returning it. That decision will depend on such factors as the cost of buying out, and if you can either live with how it looks, or if you can repair it yourself for considerably less. From there, you can either keep it in your fleet, or sell it if you can get enough to cover everything and perhaps even turn a bit of a profit out of the situation.

What to Do if the Vehicle is in a Crash

In addition to informing your insurance company, you also need to notify the leasing company—it is, after all, their vehicle. If you don’t, you may be in violation of your lease, which will come with a penalty. The lessor will ask for reports and estimates on the damage, even if you’re going through your own insurance company for the repairs. It may also have a preferred repair facility that you’ll need to use. While it’s unlikely, with litigation being what it is, there’s always a possibility the lessor could be named in any injury suit, so everyone has to be aware of what happened. 

When the Vehicle is Written Off After a Crash

If the vehicle is a total loss, everyone will have to work together on how it will be covered. You may be responsible for the difference between how much the insurance company will pay as fair market value for the vehicle, and what you still owe on it to the end of the lease. This is why you might consider looking into GAP insurance that will cover the difference. You need to work with the lessor to settle everything to the point of the lease being terminated.

What to Know About Your Lease

Your lease contract will include such vital information such as your allowable mileage; what constitutes damage; if you can get it repaired yourself or you need to use the lessor’s preferred facility; your obligations for reporting crash damage; the minimum insurance you need to put on the vehicle; and further details based on your specific lease. It’s best to have your lawyer look it over before you sign on the dotted line. Whenever you enter into a lease, know everything about it, know your responsibilities, and do what it takes to make sure you’re protected.