When you lease a car, one of the things you have to really consider is the annual mileage.
Your annual mileage determines how many miles you will be doing (obviously) and it also has an impact on the monthly payments. We’ll discuss this in a minute. Also, if you go over that annual mileage, you will incur charges.
But, what happens if you have already gone over your miles? Or you think you might be over your mileage when your contract is up?
We advise people on this matter every day at OSV, so we’re going to talk you through the advantages and disadvantages of leasing a car when it has gone over its mileage.
What is excess mileage?
Firstly, let’s talk about what excess mileage actually is.
Excess mileage is when you go over your annual mileage. Your mileage is set at the start of your agreement. This can be anything from 5,000 miles to 45,000 miles annually. If you go over this, then you will incur excess mileage charges.
These charges can vary between manufacturer but can range from anything between 1.5p/per mile + VAT to £1 per mile + VAT.
Sometimes finance houses will increase the excess mileage charge if you go over your mileage by a certain amount. For example, one finance house is known for increasing the charge if you do more than 10% of the contracted mileage. This increases the charges by 50%.
When will I pay the excess mileage charges?
If you should go over your miles, you will pay the excess mileage charges at the end of your agreement. The finance house will come to collect your car, and charge you accordingly.
This is the case even if you choose to extend your mileage. We’ll talk about extending your mileage in a bit.
What are the advantages of leasing a car that has gone over its mileage?
You probably think this is a really stupid question, how can there be advantages to going over mileage? But actually, it’s not.
There is an advantage to going over your mileage on a lease car, and that’s that you may save money.
Let’s say you weren’t sure if you were going to do 8,000 miles or 10,000 miles a year. What do you do? Well many would opt for the higher mileage in order to avoid excess mileage charges. However, this isn’t always the more financially viable option.
Sometimes it costs you more to go for the extra mileage than it would if you paid the excess mileage charges.
Miss Smith has a two year contract. She has an annual mileage allowance of 5,000, which is 10,000 miles overall. But, Miss Smith actually does 10,000 each year, so that’s 20,000 miles over the course of the contract. The excess mileage charge as 6p/per mile + VAT, meaning Miss Smith has to pay £600+VAT in excess mileage charges at the end of her contract.
If Miss Smith opted for a higher mileage, she could have been paying as much as £50 extra a month. But instead, she’s paying the excess mileage. This works out at only £25 a month (£600/24 months). So, if we look at it that way, the excess mileage charge is actually a better option.
What are the disadvantages of setting mileage higher than you need on a lease car?
So what about the disadvantages of leasing a car that has gone over its mileage?
Of course there are going to be disadvantages for this. It’s an extra cost that can be avoided if you want it to. Some people choose to go for a higher mileage because they would rather the money be added to the monthly payments. This is completely understandable as it avoids having to pay a fee at the end.
And, while there are occasions when it is cheaper to pay the excess mileage charge, there are occasions where it isn’t. If your excess mileage charge is on the higher end of the scale, then you could end up being charged quite a bit of money.
Also, if you have a personal contract purchase and you want to sell it on at the end, going over your mileage can be a disadvantage. This is because the more miles a car has done, the less it is worth. So you could end up selling the car for less than originally planned.
Can I extend my mileage?
In most cases, after the first twelve months of your lease contract, you will be able to extend your mileage. After a year you should have a good idea of whether you should extend your mileage or not. Your monthly payments will go up, of course, but they could be less than the excess mileage charge.
This is a good option for those who are unsure how many miles they will be doing. You cannot reduce your mileage. This is really important to note.
So, when I get a customer who is unsure how many miles they are going to do, I tell them to go for the lower miles for the first year. This is because if they opt for a higher mileage, they could end up paying more than they need to. You have to pay for the pre-agreed mileage, regardless of whether you actually use those miles. Therefore, it’s always a good idea to go for the lower mileage if you are unsure. You can always extend it if you wish.
Is there a maximum mileage on a lease contract?
The maximum mileage you can have on a lease contract is 50,000 miles a year. Many finance houses will only go up to 40,000 miles a year.
This is because they want something out of the car when you hand it back. And, they aren’t going to get much out of a car that has done over 100,000 miles. This is because they consider 100k the maximum mileage a car should do comfortably.
If you think that you are going to go over the maximum mileage then you have two options;
- Opt for the maximum mileage and pay the excess mileage charge
- Or, look at a finance lease – you can find out about finance leases here.
So there are advantages and disadvantages to leasing a car that has gone over its mileage. Whether you pay the excess mileage or extend your mileage is completely down to you. Both are financially viable, it just depends on your situation, and which one you prefer.