You’ve got it all planned out.
A romantic getaway to the Riviera with your latest flame… that is, your new car (don’t worry, we won’t judge)
Five hundred and fifty miles of captivating coastlines, blissful beaches and cerulean sea lies before you. You inhale deeply the crisp salt air.
It’s 30 degrees. You snicker as you notice the other British tourists panting and frantically fanning themselves to cool down (We are not well suited to such climates, after all). You could say that you have an unfair advantage… The gentle sea breeze keeps you cool and calm as you gracefully glide along the coast in your brand new BMW 2 Series Convertible. You could get used to this...
You screech to a halt as you read the lease terms: Excess Mileage Charge: 53.5p/mile.
Your little fantasy, like a car colliding with the back of a 26 tonne bin-lorry, has been completely and utterly trashed.
There’s no way you could enjoy such a luxury with your measly 10,000 mile annual limit AND still use your car for what it was meant for (going to work).
Could you really afford to pay that much for every extra mile you used?
What are excess mileage charges? Can they be avoided? and are they always a bad thing? We’ll give you the lowdown, as well as some things to keep in mind when considering what annual mileage allowance you should choose when signing up for a business or personal contract hire deal.
What are excess mileage charges?
If you’ve been considering a lease car, chances are you’ve heard of excess mileage charges by now. When you choose a lease deal, you also choose an annual mileage. This is the number of miles you’re allowed to drive each year before. Of course, you can drive more than that… but it will cost you.
Why do finance companies do this? Don’t forget they have to sell your car on at the end of your contract, and a car that has only done 40,000 miles will sell for a much higher price than one that has done 80,000.
You might see this as a bad thing, but don’t forget there’s plenty of advantages to car leasing. The main advantage being, of course, that you get to drive a brand new contract hire car for a fraction of the purchase price.
How are excess mileage charges calculated?
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 return of the vehicle, on a pence-per-mile basis. This can range from 4p per mile to 70p per mile, depending on the car and the finance provider.
As you can imagine, getting charged 70p extra per mile could lead to some pretty hefty charges if you even did an extra 1000 miles per year. Over a 3 year contract that would amount to £2100!
Nobody wants to come to the end of their contract to be issued with a bill like that…
Unfortunately, it’s not always as simple as:
Excess Miles X Cost Per Mile = Excess Mileage Charge
Some finance companies will increase the amount that you are charged per mile depending on how much you have exceeded your allowance.
For example, you may be charged 10p per mile initially, until you exceed 10% of the agreed mileage. After that point, the cost per mile may increase by 50%, to 15p per mile. As such, we’d always recommend checking with the finance provider if this is the case before you sign up.
How do I choose the right mileage for my lease?
If you already have a car, then this could be fairly straightforward to do. Simply work out what your average monthly mileage is in your current car and multiply this by 12. This should give you a rough estimate for your annual mileage.
The higher your annual mileage, the greater your monthly payments and initial rental will be. It makes sense to take time to consider how much you will actually use your car, so that you don’t end up paying for more than you’ll use, as this won’t be refunded at the end of the contract.
Of course, things don’t always go to plan, and if you think you might be likely to start using your new vehicle a little bit more because you’re planning to move or have to start thinking about taking the kids to school, you should probably factor this in. Even then, sometimes these things are impossible to predict. We would always say aim for a slightly generous annual mileage allowance so that you don’t get any nasty surprises mid-way through your contract! However, as we’ll discuss later, sometimes a higher mileage contract isn’t always the best option...
Will I have to pay excess mileage charges at the end of each year or at the end of the contract?
You might be wondering, if it is called an annual mileage, does that mean you will be charged for excess miles at the end of each year?
The answer is, no. The finance provider will only consider your total miles at the end of the agreement. If you signed up for a 3 year contract with an annual mileage of 10,000 miles, then there’s nothing stopping you from clocking 20,000 miles in your first year. Just as long as you’ve used no more than 30,000 miles by the end of your 3 year contract, you won’t be hit by any excess charges.
However, there is one thing to bear in mind. While many finance companies won’t make you aware of this, you are legally able to apply to end your car lease early (also known as a voluntary termination). This means that you can end your lease contract early. If you do so, you will usually liable to pay 50% of the outstanding payments. This can be useful if your circumstances have changed significantly since you signed the contract, and the car is no longer suitable so you don’t want to continue paying for it.
At the point of early termination, excess charges will be calculated on a pro-rata basis. This means that if you decided to cancel a 2 year lease contract after the first year and had already used 15,000 miles, you would have to pay not only 50% of the outstanding payments but also an additional 5,000 miles worth of excess mileage.
What should I do if I think I am going to exceed my annual mileage?
So you got a new Audi A3 Cabriolet on a 3 year contract with 10,000 annual miles and after 2 years the honeymoon period still isn’t over. You’ve got 3,000 miles to last you the year. If you’re lucky, you might just about be able to get to work and back… for a few months. What do you do?
Well, you have a few options:
- Increase your annual mileage
- Pay your excess mileage charges
- Swap cars with someone
Can I increase my annual mileage during my lease?
This is at the discretion of your finance company. Some finance companies will allow you to apply for a mileage extension. This is a formal change to your contract which will allow you to increase your annual allowance.
If this is permitted, the finance provider will issue a new contract document with details of the mileage amendment and a calculation of the new, higher monthly rental. It is worth noting that this option is not available with every contract, so you should try to select the most appropriate mileage option at the start of your contract.
Is it cheaper to pay the excess mileage charge than go for a higher mileage lease?
Surely not? I thought excess mileage charges were bad!
Let’s say you’re leasing a car on a 2 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 2 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 over the duration of your contract for only £600, saving you a tasty £240.
It doesn’t always work out this way. Most leasing companies will have significantly higher charges for excess miles to encourage you to opt for the higher mileage option upfront, though it’s worth giving this some thought before you commit to a contract.
Will I still have to pay excess mileage charges if I decide to purchase my lease car?
Unlike in other types of car finance such as Personal Contract Purchase agreement (PCP) or Hire Purchase agreements (HP), the expectation with car leasing is that you will return the car at the end of your contract. This means there’s no large ‘final payment’ and generally cheaper monthly payments, as you won’t ever own the car. Of course, you can buy the car out if you’re desperate to keep hold of it, but this is generally a more expensive option.
Perhaps you’ve used a lot more miles than you had initially agreed to. But what happens if you decide to purchase your lease car at the end of your contract? Will you still be liable to pay for any excess mileage charges?
When you inform the finance company of your intention to buy you will still have to declare the annual mileage of the car and they will still charge you for any excess miles.
What can I do to avoid paying excess mileage charges?
Let’s say your finance provider won’t let you process a mid-contract mileage amendment and you’re still stubbornly refusing to pay those pesky excess mileage fees. What else can you do?
Choose a contract with a high annual mileage to start with.
This may seem like an obvious one, but if you are worried that you might exceed your annual mileage during your contract then you might as well play it safe. Let’s be honest, a lot could happen in the next 2 to 4 years. Perhaps you’ll relocate or find a new job that is further away, or maybe you’ll realise that your parents aren’t getting any younger and it’s about time you started spending that little bit of extra time with them at weekends. Unfortunately, we can’t see the future, so it’s your call!
Keep an eye on those miles!
Only use your car when you really need it. Let’s be honest, you can probably walk to the off-license, it’ll do you some good.
Swap cars with someone
This is a great idea if your car is on a business lease. Perhaps your daily commute is a lot further than your colleagues, and you’re close to maxing-out your miles. Why not just swap? It could save you a lot in the long-run. Just make sure you empty the cup-holders and side-pockets of all your mess beforehand.
So, what’s stopping you?
So now you know everything there is to know about excess mileage charges, you should have no trouble working out which lease deals will work for you. Perhaps that trip to the south of France doesn’t have to be a fantasy after all...