So you’re looking for a new car.
You’ve always been one to have the latest gadgets - cars are no exception. You’ve heard about car leasing, but you’re pretty sure that lease cars are for people who don’t drive much. The only deals you’ve seen advertised have an annual mileage allowance of 10,000 miles. You're wondering whether to lease or buy a car if you need a much higher mileage allowance.
Your life is pretty much on the road - whether it is the daily commute to work, picking the kids up from school or visiting relatives at the weekend. You couldn't live without your car.
How would you keep within a paltry 10,000 contracted annual miles?
Luckily, you don’t have to...
We’re going to take a look at the lesser known, but equally attractive, high mileage lease deal, and its less desirable relation, the unlimited mileage lease.
How do Mileage Limits work?
All business and personal contract hire cars have an annual mileage limit. This is because when you lease a car you are paying the difference between what the car costs new and what it will be worth at the end of the lease contract, known as its ‘residual value’.
As you don’t ever own the car, the finance company has to be able to sell the car at the end of your contract. The number of miles that a car has been driven impacts the rate of depreciation. If you drive more miles, the car will have a lower residual value at the end of the contract. By setting an annual mileage limit, the finance provider can ensure that you are paying the right amount each month to offset this.
Most lease deals have an annual mileage between 10,000 and 15,000 miles. Car leasing companies are able to offer some incredibly cheap lease deals because they have a low annual mileage allowance.
But these low mileage lease deals aren’t always practical. Some people take the bait, lured in by a ‘too-good-to-miss’ deal on an Audi A5 Cabriolet with 8,000 annual miles only to find themselves halfway through their contract and cycling to work on a cold December morning in a desperate attempt to avoid the dreaded excess mileage charge.
Luckily, finance providers recognise that this kind of restrictive arrangement isn’t for everyone.
What is a High Mileage Lease?
A high mileage lease is a contract that has a higher annual mileage allowance. This can be anywhere from 18,000 to 40,000 annual miles. The lessee will make higher monthly lease payments, but will avoid paying expensive excess mileage charges.
The penalties for exceeding your contracted annual mileage can sometimes add up to as much as 70p per mile, so the extra miles included in these lease deals make them a great choice for high mileage drivers that don’t want to have to worry about paying the premium for excess miles.
Of course, it means that your average monthly payment and upfront cost will be higher to account for the potentially higher rate of depreciation. But you still have all the benefits of a traditional, low-mileage lease deal.
What is an Unlimited Mileage Lease?
An unlimited mileage lease is a little different. While they do exist, you will not find many contract hire providers who will offer this kind of contract. A lot of the time, unlimited mileage PCH deals are for second hand cars.
This can be a very expensive option. This is because, as we discussed earlier, the number of miles that a car has been driven is a major factor in the rate of depreciation. If your finance provider is looking to sell on the car at the end of your lease term and there is no way to estimate how many miles you will drive over the term of that period, then your finance provider has to ensure that you are paying for the maximum amount that your car might depreciate.
This means you could end up paying very close to full market value of the vehicle and still have no asset at the end.
If you’re looking for this level of flexibility then, in all honesty, leasing probably isn’t for you.
What are the advantages of a high mileage lease?
So you’ve probably seen plenty of lease deals advertised with a 10,000-12,000 mile annual allowance. Does this mean that high mileage lease deals aren’t as desirable?
Not at all!
Sure, low-mileage lease deals are cheaper, but that’s only because the car will have a higher residual value when you return it.
You will still get all the same benefits as you would with a standard low-mileage lease.
For starters, you’ll get to drive a brand new car at a fraction of the normal purchase price. This is great if you want the latest and greatest car without being lumbered with a highly devalued asset after 3 or 4 years.
By taking on a high mileage lease, you won’t have to go through the hassle of selling a car which already has 100,000 miles on the clock. This also means you’re protected against any sudden devaluation in your car. This might happen if new, more restrictive emission regulations are introduced which make your car a less desirable option, or if a particular fault is discovered with your model, for example.
If you’re really hammering those miles you might expect some rather expensive MOTs further down the line. Luckily, if you lease your car and it is never older than 3 years, that doesn’t have to be your problem!
Of course, a high mileage lease also gives you some peace of mind if you’re unsure how many miles you’re going to use. However, we’d recommend giving this some serious thought beforehand, as you won’t be compensated for any miles you don’t use. Our article on excess mileage charges gives some great tips if you’re unsure how many miles you might need!
What are the disadvantages of a high mileage lease?
One of the most obvious disadvantages of a high mileage contract is the higher monthly lease payments. However, this is not something you should be too concerned about. If it does concern you, you can try some car lease negotiation techniques to get the cost down.
Let’s say you opt for a 3 year contract with 35,000 annual miles. The monthly lease payments and initial down payment are significantly higher than they are for the deal with 10,000 annual miles.
But you are still only paying the difference between the vehicle’s initial purchase price and the residual value. If you had bought the car instead, you would still have lost this money by the time you decide to resell.
Where this might become an issue is if, for whatever reason, you do not use the full allowance. Perhaps you relocate for work and have managed to shave 40 miles per day off your daily commute.
That’s nearly 10,000 miles you’ll be saving each year!
Unfortunately, you’ll still be paying for the privilege, even though the finance company will get a much better resale price at the end of the contract.
If you think your work or family arrangements might change drastically in the near future, we’d recommend you give some serious thought to exactly how many miles you need before signing a contract.
Can I upgrade to a higher mileage car lease during my contract?
Some finance companies will allow you to apply for a ‘mileage extension’. This is a formal change to your contract which allows you to increase your annual mileage allowance. This is permitted at the discretion of your finance provider, and you may sometimes incur additional charges for changing your agreement mid-term.
The finance provider will issue a new contract document detailing the new, higher-monthly rental and your increased annual allowance. As this option is not available on every contract, we recommend that you take your time to consider the most appropriate mileage allowance for you before you sign a contract.
Can I get a high mileage lease with poor credit?
It is very unlikely that a broker will offer you a high mileage lease if your car lease credit check comes back iffy. You do need good credit to lease a car in general, so a reputable broker is unlikely to make the further exception to give you an increased mileage allowance.
The only viable option is to appoint a guarantor for your car lease but not all brokers allow this.
What else should I consider before opting for a high mileage lease car?
One thing you might want to look into if you’re getting a high mileage lease is an extended manufacturer's warranty. The standard warranty will usually only cover you up to a certain number of miles.
We wouldn’t advise sticking with a 50,000 mile standard warranty if you’re taking it on a 3 year contract with 35,000 annual miles as this would leave you without cover for the last year and a half. This means you’ll be liable to pay for any additional repair and maintenance costs. By this point you’ll have racked up some considerable mileage on your car, so the expenses could soon start to add up.
I think a high mileage lease might be for me!
With all the benefits of a standard, low-mileage lease and with the added security of a few extra miles, you can’t go wrong if your car is your crutch.