Credit card companies have long rewarded customers with cash back based on their purchases. While yearend cash rewards vary, the card stimulates purchases because consumers rationalize additional spending by reminding themselves that the more they spend, the more they’ll earn.
Maybe a similar strategy could be employed for leases. Consumers will receive cash back for coming in under the lease’s mileage allotment. Think of it as a reverse mileage penalty. For instance, a consumer who drives 18,000 miles instead of the 24,000 he’s allotted in the three-year lease would be compensated for the 6,000-mile difference.
Lessors could stick with a straight price-per-mile compensation structure, or they could employ a tiered model. Here’s an example of terms that could be applied:
• Mileage compensation would kick in only if the consumer is 1,000 miles or more under the allotment.
• From 1,000 to 3,000 miles under, the rate would be $0.05 per mile.
• From 3,001 to 6,000 miles, it would be $0.07 per mile.
• More than 6,000 miles under, and the consumer would receive $0.10 per mile.
• Lessors could cap the rate at $1,000 cash-back.
There are lots of iterations of this idea. For instance, the per-mile rate could offer annual rewards as opposed to a single cash-back check at lease-end. The customer could choose a lower rate per mile if he takes the rewards each year, rather than a higher rate if he takes it all at the end of the term.
Also, additional incentives could be applied for consumers who lease their next vehicle with the same company.
For lessors, the product would engender customer loyalty, especially at lease-end, when things sometimes get contentious. The cash-back lease would also encourage consumers to drive less, which would preserve vehicle condition and ensure higher auction returns for the lessor.
Marcie, interesting idea, but the term "mileage penalty" should never be used. It's a mileage charge or, in this case, reverse mileage charge. A penalty implies fault, not legal (additional) use. You're onto something, but lessors may not favor this as it borders on a key fear, educating consumers too much that they are smart enough to buyout their lease if they have equity (whether based on market conditions or mileage).
Smart. I like it. How about using your credit card to pay your lease and get the money back that way.
Yes, sorry, Adam. Didn't mean to offend. "Charge" would definitely be a more accurate term.
A major issue for sure but also the positives need to offset the losses.
Leasing sold properly is a great tool for a consumer that always has a car payment when financing.
Adam M. Berger said:
You're onto something, but lessors may not favor this as it borders on a key fear, educating consumers too much that they are smart enough to buyout their lease if they have equity (whether based on market conditions or mileage).
Speaking of "Cash Back:" One of the best advertising lines ever when pitching lease payments is "Cash Back In Your Hand for the Equity in Your Trade!"