As a vehicle gets older, it depreciates in value and the more miles it has on the clock, the greater that depreciation. So when you take on a lease agreement on a car or van, you agree to a set mileage allowance over the period of the lease with a cost built into your monthly cost agreement - the more the mileage allowance, the greater the cost.
The annual mileage allowance is there so that the finance company funding your lease vehicle can estimate a resale value on the car or van once the lease period is over. But what happens if you go over that mileage agreement? This is when excess mileage charges come into play.
Excess mileage charges represent the fees you will pay to the finance provider if you go over your pre-agreed mileage allowance. The excess mileage charge is calculated at a pence per mile rate. Put simply, the more you go over your pre-agreed mileage, the more it will cost you in excess mileage charges.
The excess mileage charges are set by the finance provider are calculated based on a number of factors including:
It is also worth noting that some finance providers have tiered excess mileage. This means that you’ll be charged one excess mileage rate for any miles up to a set point, then another excess mileage rate for anything beyond that.
Excess mileage charges vary from finance provider to finance provider but typically range from around 3p per mile to 30p per mile.
As excess mileage charges vary it is important that you check the excess mileage charges before you sign your finance agreement. You will be advised of your excess mileage charge upfront and this will show on your contract.
When choosing your new lease vehicle, one of the most important things to consider is the annual mileage. It is vital to choose a mileage allowance that reflects your driving habits because if you exceed your chosen mileage, you will be liable to pay excess mileage charges.
Your choice of mileage allowance is completely down to you. If you are confident that your driving habits are likely to remain unchanged from the previous few years, the difference between the mileage amounts stated on your recent MOT certificates will give you a fair idea of the mileage you’re likely to need.
Or, you can take a measurement based on how many miles you do in an average month and multiply it by 12. It is best to average this over a year because you may drive more during the winter months when the weather is bad, but less during summer months when you typically take holidays abroad, so keep these in mind to make your estimation as accurate as possible.
Whilst you pre-agree an annual mileage at the start of your lease agreement, the finance provider do not actually track your mileage each year. Only at the end of the agreement do they look at your total mileage to work out whether excess mileage charges apply. This means, so long as you hand the vehicle back within the pre-agreed mileage perimeters, how you use this is up to you.
For example, if you took out a 24 month lease agreement with an annual mileage of 10,000 miles per year, you could do 5,000 miles in year one but 15,000 miles in year two. As the vehicle is returned with 20,000 miles (or less) on the clock, you will not be charged an excess mileage charge.
If you exceed the mileage allowance on your lease vehicle, any mileage over the agreed amount is charged at the agreed excess mileage rate per mile.
If the excess stated in your agreement is 5p per mile, and you exceeded your mileage allowance by 1,000 miles, you would be charged £50 at the end of your lease.
When leasing with Nationwide Vehicle Contracts, the excess mileage rate will show on your lease quotation (see example below) as well as on your finance agreement so please ensure you are happy with the excess mileage charges applicable for your lease vehicle before you sign the agreement.
During the term of your lease contract, there may be changes in your circumstances which affect the amount of daily and weekly mileage that you do, such as moving home and changing jobs. If this is the case, it may be a good idea to consider whether a mileage extension is available to you.
A mileage extension is a formal change to your lease agreement which allows you to increase the annual mileage allowance. If permitted, the finance provider will issue you with new documentation confirming the mileage amendment and also calculate a new monthly rental. Please note, Nationwide Vehicle Contracts also charge a fee of £120 inc. VAT per vehicle for arranging this amendment on your behalf. You can read more about this option in our Amending the Mileage on Your Lease Contract guide.
Please note, any changes to your contract, including mileage extensions, are at the discretion of the finance provider and are not available for every contract. Therefore it is important that you select the mileage amount appropriate to you at the start of the contract wherever possible and find out what options are available to you before taking out your initial lease agreement.
It is up to you to monitor your own mileage, it will not be regularly checked by us here at Nationwide Vehicle Contracts.
Think carefully before choosing your annual mileage amount. Don’t just consider daily trips to and from work, but also one-off trips you’re likely to make like day trips with the family, work meetings that might be in a different part of the country and taking your lease vehicle abroad on a family holiday. They all count towards your annual mileage.
Set a reminder to check the vehicle odometer quarterly so you can accurately estimate if you’re likely to go over your pre-agreed mileage and if so, how you can reduce your mileage for future trips.
If your lease vehicle is a company car, considering swapping with a colleague who does a lower mileage amount to you to help prevent the vehicle exceeding the mileage quota.
If available, a mileage extension may be a cost effective way to avoid costly excess mileage charges at the end of the lease contract.
Have more questions about excess mileage charges? Check out our FAQ section or contact one of our Customer Service representatives for more information and advice.