A leased car returns to the finance company at the end of its term, and what happens next determines whether the arrangement made money. The mechanics explain the inspection that lessees find so exacting.
The lease was priced on a predicted value
A monthly payment covers the difference between the vehicle's price at the start and its estimated value at the end, plus interest and fees.
That estimated end value is set years in advance, and the finance company carries the risk of being wrong about it.
If used values fall below the estimate the company loses on every returned car, which is why residual value forecasting is one of the most scrutinised parts of the business.
Inspection measures deviation from a standard
Returned cars are assessed against a published definition of fair wear and tear that distinguishes normal use from damage.
The standard is specific, covering scratch lengths, dent sizes, kerbed wheels, tyre tread and interior condition, and charges follow the defined categories.
Because the charge reflects what a repair costs before resale, the assessment is a commercial calculation rather than a judgement about how carefully the car was driven.
Mileage is charged separately
The agreed annual mileage feeds directly into the predicted end value, since a higher-mileage car is worth less.
Exceeding it triggers a per-mile charge set at the start, which approximates the value the extra distance removed.
Falling well under the limit rarely produces a refund, because the payments were calculated on the agreed figure rather than the distance actually driven.
Remarketing routes the car onward
Most returned vehicles go to trade auctions, physical or online, where dealers buy stock for their forecourts.
Some are sold directly to the leasing company's own retail channels or offered to the previous lessee, both of which avoid auction costs.
Cars needing work are refurbished first, since the cost of a repair is usually less than the discount an unrepaired car attracts at auction.
Lease returns shape the used market
Lease terms cluster, so returns arrive in predictable waves of similar cars a few years after a strong period of new sales.
Those waves supply the used market with recent vehicles of known history, and they are a major reason a particular model is plentiful or scarce at a given age.
A period of weak new sales therefore produces a shortage of good used stock several years later, which is one of the slower-moving forces in vehicle pricing.