Excess mileage charges on car lease deals: what are they and how do you avoid them?
Exceed the agreed mileage limit on a car lease and you could end up paying an excess mileage charge…
We all know how many miles we drive in a year, right? Most of us have a very good idea, that’s for sure, but there is a temptation to underestimate how far you’ll drive when leasing a car to get a cheaper deal. This can be a risky strategy that could see you paying more in the long run. Here’s our guide on how to avoid paying excess mileage charges.
What is the excess mileage charge?
When you agree a Personal Contract Hire deal to lease a car, one of the first things you’ll be asked for the contract is how many miles per year you want to drive. Most lease deals offer anything between 6,000 miles and 30,000 miles per year. Multiply that by the number of years you want the deal to run and you have the mileage total for the contract. Go over that total, however, and you will incur an excess mileage charge.
A lease deal’s price is worked out based on the difference between the value of the car at the start and end of the lease period – this is the depreciation figure. It’s what your monthly lease payment is based on.
If you exceed the number of agreed miles in the car, it will be worth less than the finance company expected at the end of the deal. The excess mileage charge covers the leasing company against this and effectively makes you pay for the unexpected decrease in the car’s value.
How much an excess mileage charge is depends on the individual finance company and the car you’re leasing. The price per excess mile varies between 5p and 50p, so even a couple of thousand extra miles at the end of the lease deal can add up to a large additional bill for you.
The cost of excess mileage charges will be in the lease deal contract, but it can be buried in the small print, so check it carefully. If it’s not obvious, ask the finance company to confirm what it charges for excess mileage.
When do you need to pay excess mileage charges?
In most cases, excess mileage charges will be applied when you hand back a car at the end of the lease deal if it has gone over the agreed total mileage of the contract.
Some drivers won’t worry about the total mileage they cover and just pay the excess, while others will stop using the car towards the end of the lease period to stay within the agreed mileage limit.
That’s not much good if you need to hand back the car early before the lease deal was due to end. If you agreed to 10,000 miles per year over a three-year deal, but hand the car back at the two-year point with 24,000 miles showing, the finance company is almost certainly going to charge you for those 4,000 excess miles, plus any early termination fees.
How much is the excess mileage charge?
The amount a finance company charges for excess mileage varies, typically ranging from 5p to 50p per excess mile depending on the make and model of car.
If you signed up to an 8,000-mile per year deal over three years, that’s 24,000 miles in total. Hand the car back with 27,000 miles on the clock and you will be liable for 3,000 excess miles. Say the finance company charges 10p per excess mile, a 3,000-mile excess will cost you £300.
Some finance companies quote the excess mileage charge without including VAT, so you might have to pay a further 20% on top of the charge. This means the £300 example above could end up costing you £360 all in.
It’s worth bearing in mind that an excess mileage charge is not as bad as it can seem. Take out a lease deal with a higher annual mileage allowance and you’ll pay more per month, so that could be the same as the excess mileage charge but just paid monthly for the duration of the deal. However, it’s always best to stick within the agreed mileage.
How do you avoid paying the excess mileage charges?
The simplest way to avoid any excess mileage charge is to. stay within the agreed mileage limit of the lease deal. Also, be realistic about your annual mileage when you first agree the lease and add 10% extra to allow for any unforeseen trips. That’s not always possible, though, if you move house or circumstances change such as a new job with a longer commute.
These unexpected changes to your driving routine can quickly add up the miles, so the best thing is to speak to the finance company and ask to adjust the agreed mileage limit. Most providers will be willing to do this with an increase in your monthly payment to reflect the greater number of miles the car will have when it is returned at the end of the deal. Speak to the finance company as soon as possible and do not ignore the issue.
Never be tempted by one of the ‘mileage correction’ or ‘mileage adjustment’ firms that advertise their services. Altering the mileage of a car is illegal and called odometer fraud, better known as ‘clocking’. Paying any excess mileage is far cheaper than a court fine and possible jail term.
Frequently Asked Questions
Yes. When you take on a Personal Contract Hire lease, you are entering into a contract with the finance provider. The terms and conditions of the deal will be in the contract you sign, so make sure you read the small print.
Refusing to pay an excess mileage charge could result in you being taken to court, the case being handed to a debt recovery agency that adds further to the cost, or your credit rating being affected. You might also be refused another lease car deal in the future.
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