The mileage allowance plays a key role in vehicle leases. In this article, we will explain what the lease mileage allowance is and emphasise its significance in vehicle leasing.
Additionally, to help you avoid excess mileage charges at the end of your agreement, we will share helpful advice on choosing the right annual mileage limit. Lastly, we will explore high and unlimited mileage lease choices for UK businesses and answer any mileage leasing questions you may have.
Lease mileage allowance explained
Mileage allowance in a vehicle lease refers to the maximum number of miles a year a car or a van can be driven without incurring additional charges. For example, if you entered into a three-year Ford Transit Custom lease with an annual mileage limit of 10,000 miles, you have a total mileage allowance of 30,000 miles for the contract length. Ultimately, this means that when you return the vehicle at the end of the agreement, the odometer should not display more than 30,000 miles, excluding any delivery mileage that may be present in most leased vehicles.
Why do vehicle lease contracts require mileage limits?
UK’s car and van lease contracts come with mileage limits for a few reasons. Firstly, these limits help to protect the residual value of the car or van. Excessive mileage would unavoidably result in increased wear and tear on the vehicle, reducing its value at the end of the lease term. Secondly, mileage allowances serve as a way for leasing companies to manage their risk. Higher mileage increases the likelihood of mechanical issues, necessitating repairs and decreasing the overall profitability of the lease.
In short, mileage limits in lease contracts allow leasing companies to accurately forecast the future value of the vehicle. By setting specific mileage caps, they can estimate the vehicle’s expected mileage at the end of the lease and factor it into the vehicle deal price.
The best way to calculate how many miles you require for a van or car lease
The estimated annual mileage that you declare is entirely at your discretion; your funder cannot impose a specific limit on you. However, all funders we work with have a minimum requirement of 5,000 miles per year.
When choosing your mileage limit, it’s crucial to select a realistic figure that aligns with your personal or business needs.
Consider how many miles your van or car has been driven in the previous years. If you are confident that your driving habits will remain consistent, it would be helpful to review your past MOT certificates to get an idea of the mileage allowance you are likely to require. Alternatively, you can calculate your average monthly mileage and multiply it by 12 to estimate your annual usage.
We recommend calculating your average mileage over a year to account for any variations in seasonal usage. For example, if you lease a tipper van for your landscaping business, you might be driving the vehicle more in the spring and summer due to the higher demand for your services. Or, if you have a company car, you may choose to commute by bike during hot summer days or take more unusual trips if you also have the car for personal use. Taking these factors into account will help ensure that your mileage estimate is as accurate as possible.
High mileage vehicle leasing
Some of you might be wondering what’s the maximum mileage allowance when leasing a new car or a business van. Well, there is no set limit. However, in reality, most finance companies won’t agree to more than 50,000 miles per year or 180,000 over the entire agreement. The reason for limiting the mileage on a leased vehicle is the depreciation. The more miles it covers, the greater the wear and tear it experiences, leading to a lower residual value. Consequently, high mileage leases come with higher monthly payments compared to standard leases due to the increased risk. So, it’s not practical for you to pay high monthly payments and increased maintenance costs or for the finance company to sell the vehicle at a low value at the end of your contract.
If you have concerns about leasing a van because of your high mileage requirements, we encourage you to reach out to our team. At Commercial Vehicle Contracts, we have various lease mileage options. We can provide guidance and help you secure a lease agreement that is suitable for your business car or van with high mileage needs.
Unlimited mileage leasing
While searching for an unlimited car or van lease online may generate some results, it is important to note that leasing a vehicle with unlimited mileage is not typically possible. This is because the mileage allowance plays a crucial role in determining the risks and potential wear and tear associated with the vehicle. These factors are used to calculate the estimated car’s or van’s value at the end of the lease agreement, allowing the leasing company to set appropriate charges. Therefore, unlimited mileage lease is not typically offered by leasing companies.
It is worth mentioning that unlimited mileage options are typically available with purchase products such as Conditional Sale and Hire Purchase. In these cases, once you have made all the payments, you become the owner of the vehicle. In this case, the funder is not concerned about how much it’s worth.
Therefore, if you are looking for a lease car or van, it is important to consider your expected mileage and choose a leasing option that aligns with your specific needs.
Amending the mileage allowance
Sometimes circumstances change, and despite your best intentions, you might end up needing more miles than you originally anticipated. So, what to do if you know you are going to exceed your mileage allowance? To avoid any excess mileage charges, you might want to adjust your limit. To do that, you need to contact your finance provider directly. However, it’s important to note that the ability to change the mileage is at the discretion of the finance provider, and is not guaranteed.
There are certain conditions that may affect your eligibility for a mileage amendment. These include having an account in arrears or being subject to default or insolvency, as well as having an incomplete modifying agreement.
The criteria for mileage amendments vary not only from funder to funder but also from contract to contract. In most cases, finance providers do not allow mileage amendments within the first 12 months of signing the lease agreement. Additionally, they may require at least six outstanding payments on the original agreement before allowing a contract amendment.
For customers on a Personal Contract Hire agreement, some finance providers may not allow changes to the mileage allowance at all. Furthermore, regulated customers such as sole traders or partnerships with less than 3 partners might also be ineligible for a mileage amendment with certain funders.
Moreover, some finance providers also require that the mileage amendment exceeds 10% of the initially agreed mileage. For example, if your original mileage was 10,000, you would need to increase it to at least 11,000 miles.
Keep in mind that funders typically charge an administration fee for each vehicle a mileage amendment is requested for.
It is essential to check with your specific finance provider to understand their policies and procedures regarding mileage amendments on lease agreements.
Excess mileage charge: What happens if you go over the agreed annual mileage?
If you return your vehicle with more miles than what was agreed upon in the contract, the finance provider will require you to pay a fee for any additional miles a vehicle had covered. This is because the vehicle is worth less than the funder anticipated based on your estimate. The amount of the excess mileage charge can differ depending on the finance provider and even the make of the vehicle. However, it is always clearly stated in your lease agreement. For more information on this topic, please read our dedicated blog post Excess mileage charge explained.
Mileage in leasing FAQs
Does the funder track mileage annually?
While you are required to establish the annual mileage limit at the beginning of the contract, your finance provider will not conduct annual odometer checks. The crucial factor is that upon returning the vehicle, the odometer reading does not exceed the annual mileage limit multiplied by the length of the contract in years.
How much is the excess mileage charge?
Excess mileage charges not only vary between funders but also between the types of vehicles and makes. This is because mileage plays a crucial role in a vehicle’s depreciation, and some cars and vans depreciate quicker than others.
The fees for excess mileage can vary depending on the vehicle you are driving and your leasing contract. It is important to fully comprehend the specific terms of the fees and be aware of the potential range, which can be as low as a few pence per mile or as high as a pound per mile, or even more.
Does the delivery mileage count towards the yearly mileage limit?
Even when you lease a brand new vehicle, you should expect it to be delivered with some mileage. This is because most cars and vans are delivered by road. However, this mileage is reported to the finance company and is disregarded from your mileage allowance figure.
