What are excess mileage charges?
One of the most asked questions of the leasing process from personal and business customers is what happens if you exceed the total contract mileage.
As a vehicle gets older, it depreciates in value, and the more miles it has on the clock, the greater the depreciation. When you begin a lease agreement on a new or nearly-new vehicle, you agree to a set mileage allowance throughout the lease with a cost built into your monthly amount. The higher your mileage allowance, the greater the cost.
The reason the annual mileage allowance is in place is so the finance company that funds your lease vehicle can estimate a resale value on your car at the end of the lease contract. What if you go over that mileage agreement? This is when excess mileage charges come into effect.
Excess mileage charges are the fees you pay to the finance provider if you go over your pre-agreed mileage allowance. The more you go over your pre-agreed mileage, the more it will cost you in excess mileage charges. The finance provider calculates the excess mileage charge at a pence per mile rate.
How to work out your annual mileage
Instead of worrying too much about excess mileage charges, it’s less stressful to try and estimate your mileage accurately. First of all, try to gauge the number of miles you’ve driven over the last year. If you think you’ll cover a similar amount of annual mileage in your new lease car, this is a good starting point.
If you expect to cover a different annual mileage, or you’re unsure about the previous mileage you’ve covered, it’s best to start from scratch. First of all, consider the amount of commuting you do to work in a year; if it’s 200 miles per week, that’s an annual figure of just over 10,000 miles per year. Now think about any other regular journeys you make.
For example, a monthly round trip of 150 miles to visit your parents would result in an additional 1,800 miles. A weekly 15 mile trip to your local supermarket would equate to 780 miles annually.
Do you drive to any European countries for a holiday? If so, add this figure into your annual mileage calculation. Try to factor in what other regular journeys you make each week and multiply that by 52 to get a yearly figure.
Once you’ve estimated your annual mileage, it’s worth adding on an extra 10% as a safety net, just in case you cover any unexpected journeys.
Do this, and you won’t have to worry too much about the excess mileage charge.
How are excess mileage charges calculated?
Excess Mileage charges are determined by the finance provider and are calculated based on numerous factors such as:
• The make and model of the vehicle
• Your total pre-agreed mileage
• The financial provider who funds the vehicle
• Whether vehicle maintenance is included
• The total mileage amount on the vehicle at the end of the contract
Some finance providers have tiered excess mileage. This means that you will be charged one excess mileage rate for any miles up to a set point, then another rate for anything beyond that.
What should I do if I think I will exceed the mileage allowance?
Are you worried that you might forget the annual mileage cap and unintentionally exceed it? Fleet UK would advise you to either set up a yearly reminder of your annual allowance on your phone or keep a note of it in the vehicle, placing it somewhere visible.
This could help you avoid unconsciously exceeding your mileage limit with unnecessary journeys and facing an excess mileage charge at the end of your lease.
If you think you’re still going to go over your allowance, don’t worry too much. You can always contact the finance company, the earlier, the better, and request to increase your mileage allowance. Although, asking to increase your mileage allowance is at the discretion of the finance company.
Suppose the finance company agrees to the increase in your mileage allowance. In that case, they will issue a new contract document detailing the mileage amendment and a revised calculation of the new monthly rental amount.
Providing you’ve gauged your mileage accurately, it should still cost less than ignoring the mileage and having to pay an end-of-contract charge.
You might want to check that the finance provider for your leasing contract offers the ability for you to increase your mileage allowance.
What could the end of contract charge cost me?
Excess mileage charges are based on the number of miles a vehicle is driven over the amount stipulated in the lease contract. Excess mileage charges are calculated on the return of the vehicle, on a pence-per-mile basis.
Excess mileage charges vary from finance provider to finance provider, typically ranging from 3p per mile to 70p per mile, depending on the car and the finance provider.
You should check the charges before you sign your finance agreement. In addition, you should be advised of the excess mileage charges in advance, which will appear on your contract.
Is it cheaper to pay the excess mileage charge than go for a higher mileage lease?
It depends on the finance provider.
For example, say you’re leasing a car on a two-year finance agreement with 15,000 annual miles. You know you’ll have easily done 18,000 miles at the end of each year. Would you have been better choosing the lease deal with 20,000 annual miles?
Perhaps you would be paying an extra £35 a month or an extra £840 over two years for the additional 10,000 miles. But if your excess mileage charge was 10 pence per mile, then you could drive an extra 6,000 miles throughout your contract for only £600, saving you £240.
It doesn’t always work out this way. Most finance providers will have significantly higher charges for excess miles to encourage you to opt for the higher mileage option up front, so it’s worth giving this some thought when committing to your leasing contract.
Will I have to pay excess mileage charges at the end of each year or at the end of the contract?
Because it’s called an ‘annual mileage’, you might think that you’ll be charged for excess mileage at the end of each year - this is not the case.
The finance provider only considers your total miles at the end of the leasing contract. If you signed up for a three-year contract with an annual mileage of 10,000 miles, nothing is stopping you from driving 20,000 miles in your first year.
As long as you haven’t clocked more than 30,000 miles by the end of the three-year contract, you won’t be hit by excess charges.
What you definitely should not do
Some unscrupulous firms out there advertise services to artificially reduce a vehicle’s mileage, with the understanding that this can boost a car’s value and avoid excess mileage charges.
Although this practice was seen regularly over 20 years ago, it’s increased by a third over the last five years, with as many as 1 in 14 vehicles having a ‘clocked’ mileage.
However, the law states that it’s the driver's responsibility to declare the vehicle’s mileage if it has been changed when handing the car back to the finance company. By not doing so, it’s breaking the law.