If you’re looking to buy a car on finance, you may have heard about excess mileage charges. But what are excess mileage charges and why do you need to be wary of them?
When you take out a lease deal or PCP agreement, there will be a mileage limit per year which you must keep to, and you’ll incur an excess mileage charge for exceeding this. It’s usually paid in pence per mile at the end of your contract.
Keep reading for all you need to know about excess mileage charges including what they are and how to avoid them.
What are excess mileage charges?
When you lease a car, or finance one using Personal Contract Purchase, there will be a mileage limit in your contract which you will usually agree with the finance company before you sign up.
The finance company uses this mileage limit to predict the car’s value come the end of your contract, so you’ll pay less per month for fewer miles because the car will be worth more when it gets sold on.
If you go over this mileage limit, you’ll be charged extra come the end of your agreement. This will be charged in pence per mile and rates can vary between 3p and 30p per mile, depending on the company.
Let’s say you decide to lease a Skoda Octavia for 48 months, with a mileage limit of 5,000 miles per year and a 10p per mile excess charge. This would mean a mileage allowance of 20,000 over the four years, but you go over that and end up handing the car back with 32,000 miles on the clock.
- Initial deposit: £2,400.21
- Monthly payments: £266.69
- Mileage allowance: 20,000
- Mileage covered: 32,000
- Excess mileage charge: 12,000 miles x £0.10 per mile = £1,200
- Cost of finance: £14,934.64
- Total cost with excess mileage charge: £16,134.64
While adding more miles to your contract may increase your monthly payment, it will save you money in the long run by avoiding these charges.
Below is the leasing cost of the same car, from the same company with a mileage allowance of 8,000 per year, 32,000 miles over a four year lease:
- Initial deposit: £2,474.64
- Monthly payments: £274.96
- Mileage allowance: 32,000
- Mileage covered: 32,000
- Excess mileage charge: None
- Total cost of finance: £15,397.76
So you can see that swallowing the extra cost per month for a higher mileage agreement ended up saving £736.88 over four years because you avoid the excess mileage charge.
When are excess mileage charges paid?
You’ll pay any excess mileage charges at the end of your agreement. This is when the finance company will work out how many miles you’ve done over the course of your contract.
Despite the mileage limit being per year, the excess mileage charge isn’t paid annually. This means if you have a limit of 8,000 miles per year, but only do 6,000 miles, you essentially carry over the extra 2,000 miles to the next year.
Can I change my mileage allowance?
If it’s looking like you’re going to go over your mileage allowance, it’s best to contact your finance provider to try and re-negotiate the limit.
Most companies will be willing to extend the mileage on your contract, this is known as a mileage extension. If you do add more miles to your agreement, the monthly price will go up and you’ll be issued with new paperwork to reflect this.
Some companies will charge you an admin fee for this as well, and not all companies will offer mileage extensions so make sure to thoroughly read the contract before signing.
How to avoid excess mileage charges
The best way to avoid paying excess mileage charges is to make sure your mileage limit is plenty big enough to suit your needs.
Say your daily commute is 20 miles, that can account for around 5,000 miles per year, and that’s before you factor in trips to the shops, family holidays or those runs to the tip.
A safe bet is to calculate roughly how many miles you cover per year, then add a couple of thousand on. The additional cost per month will usually be low compared to the charges for going over, and it’ll give you the peace of mind to not worry about when you drive the car.
The minimum mileage limit from most companies will be around 5,000 per year. It’ll usually then go up in increments of 2,000 – 5,000, rising to round 20,000 miles.
There are a few companies which offer much higher limits, around 70,000 miles per year, however very few will offer unlimited mileage.
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