Car Leasing and Mileage


author image - crispin

By Crispin O'Toole-Bateman

on Tuesday 14 August 2018


Drivers hand on steering wheel

What is a Mileage Limit?

Working Out Your Annual Car Mileage

Going Over the Mileage Limit When Leasing

Insurance and Your Mileage Limit

 

What is a Mileage Limit?

One of the easiest ways to measure the wear and tear of a vehicle is to look at the mileage. When you’re leasing or buying a brand new car, you don’t have to look at this, of course. You’re only concern is your car’s mileage limit - how many miles you’re planning on covering during the time you have the vehicle.

For decades, used car sales dealers have been using the number of miles covered as a better measurement of a car’s age, compared to the actual number of years it has been since the car was made.

After all, what would you rather buy - a four-year old car that has only driven 100 miles in its life, or a two-year old vehicle that has travelled 60,000?

Consequently, the number of miles a car has been driven is a better metric to determine its value than any other.

If you get a car on a three-year lease contract, and travel for only 10,000 miles each year, you return a vehicle with 30,000 miles or so on the clock and the leasing company can sell that vehicle on accordingly, if they choose to. Do 20,000 miles a year, and they need to cover this extra amount of depreciation in its overall worth.

Therefore, when leasing a car, you will need to set a limit on how many miles will be driven per year (or over the length of the lease), and when your leasing contract is up, if you have a high mileage and you have exceeded this amount, you will have to pay a fee to help cover the difference in real car value against the expected return value.

The limit will be agreed between yourself and the finance company at the start, so make sure you’re happy with the mileage and that you’re sure you won’t exceed this to avoid any excess mileage charges at the end (explained later).

How to Work Out Your Average Annual Car Mileage

It can seem a complicated thing for many – if you are not used to tracking mileage, how are you meant to estimate your needs?

There are a few good ways to help you understand what your personal mileage use is.

If You’re a Regular Driver

If you already drive regularly, it is easy to determine your yearly mileage. Simply reset your tripometer on the 1st of the month and don’t reset it again until the last day rolls around.

At the end of the month you will see the number of miles you’ve driven that month. Assuming there were no highly unusual trips during the month (i.e. you didn’t drive to the continent for a holiday!), you can multiply this amount by 12 and get a good idea of your yearly car mileage.

If you did use the car excessively that month (for a holiday, for example), then you may need to wait until the next month to get a better figure, or work out the extra and take it away.

This system gets far better if you have more than one month to check. Forming an average across three months or so and then calculating your yearly mileage from that is quite an accurate way to see how many miles you usually cover.

Remember – there’s no need to try to account for every unusual trip you take. You will no doubt have a different ‘unusual’ trip the next month, and the next, and taking those into account when calculating your yearly mileage is important too!

If You Don’t Currently Drive

Google Maps is your friend! A little research with the online maps tool will allow you to see the length of any regular trips you intend to make (for example, to and from work, regular trips to the supermarket or dropping the children your off at school). Make a note of all the trips you are likely to do in a month, then add a little extra for the unexpected things – usually 100 or 200 miles a month on extras is enough, depending on how much you will rely on your car.

Try not to estimate too low – it is likely you will drive a little more than you think. If you think you have been very exact with your figures, then add on 5% for a little scope.

Once you have a monthly figure, multiply by 12 to get a yearly estimate.

Average Yearly Totals

The average number of miles per year for most drivers is between 8,000 and 12,000. If your figure is significantly different to this, ask yourself if you know why that would be (a very long commute to work, for example) and if you can’t think of one then maybe it’s worth rechecking your figures.

What Happens When I Go Over the Mileage Limit When Leasing?

If you go over your car mileage allowance while leasing, the worst that’s going to happen is that it might cost you a penalty fee.

It will not affect you getting a leased car in the future. It is common for people to under-estimate their car usage and the finance company is willing and able to deal with the issue.

If you exceed your mileage limit, you will have to pay an additional charge. Depending on the car you are driving and your leasing contract, this could be anything from a few pence per mile, to as much as a pound per mile, or more. Make sure you understand the exact terms of the fees and what they could be.

Approaching the Limit – Can I Increase the Mileage?

If you know you’re coming close to, or already going over, your mileage limit, or your circumstances change and you know you are going to exceed your estimated annual mileage, then give the finance company a call and talk to them about upping your limit. Alternatively, if you are leasing with us at Complete Leasing, give us a call and we can help you.

This will have a change to your monthly leasing fee but should have no other effect, allowing you to relax and stop worrying about the miles.

Choosing to Pay the Excess Mileage Charge

In some circumstances, you could find that paying the fee is a better alternative to pre-planning. For example, if your fee is as low as 6.4p per mile and you go over by 10,000 miles on your car lease after three years, that’s a total cost of £640 to be paid. A pre-arranged mileage upgrade of 4,000 miles, however, could raise your monthly payments by more than £20 per month – and if so will cost more than £640 over a three-year period.

A situation like that could make the fees preferable, but this all depends on your personal situation.

Make sure you check the lease mileage options available to you – increasing your mileage limit is not always the most cost-effective choice.

Insurance and Your Mileage Limit

Car insurance, both business and personal, also has a mileage limit. If you lease a car, remember that you have to be legally insured at all times and the annual mileage estimate you have given the leasing company should be similar (or identical) to the one you have given your insurer.

If you change your agreement with the finance company because you notice an increase in your driving, then it is wise to also call your insurance company and upgrade with them too.

There is no need to panic, however. While technically an insurer can refuse a claim if mileage has been exceeded, they are usually understanding and allow a little leeway (100s of miles) when estimating mileage. That said, excessive amounts over the limit (measured in 1000s of miles) could cause a problem and potentially result in any insurance claim being rejected.

If you want to know more about car leasing and your annual mileage, give one of our representatives a call today who will be happy to help explain anything further.

Alternatively, you can fill in our contact form to have us call you at a more convenient time.

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