What is Excess Mileage Charge?

When leasing a car or entering into a Personal Contract Purchase (PCP) agreement, you'll often encounter the term "excess mileage charge." This fee can significantly impact the overall cost of your vehicle agreement, yet many drivers overlook it when signing their contracts. 

Understanding excess mileage charges is crucial for making informed decisions about your car lease or finance deal. These charges are often overlooked during the excitement of getting a new car but can lead to substantial unexpected costs at the end of the agreement if not managed properly. 

In this article, we aim to demystify excess mileage charges by explaining how it works and what happens if you go over your pre-agreed mileage limit. Read on to find out more… 

Key Takeaways:

• Excess mileage charges apply when you exceed the agreed mileage limit in your car lease or PCP finance contract.
• These charges typically range from 3p to 30p per mile, depending on the vehicle and type of agreement you have in place.
• Mileage limits exist to protect the vehicle's value and manage wear and tear during the period of use.
• Accurately estimating your annual mileage is crucial to avoid unexpected fees at the end of the contract.
• You can often adjust your mileage allowance mid-contract, but it may increase your monthly payments if you choose to do so.

What Are Excess Mileage Charges?

Excess mileage refers to any distance driven beyond the agreed-upon mileage limit stipulated in your car lease or finance agreement. For example, if your contract allows for 10,000 miles per year and you drive 12,000 miles, you have 2,000 miles of excess mileage to pay for.

These charges are typically calculated on a pence-per-mile basis and can quickly add up, especially for those who significantly surpass their pre-agreed mileage allowance.

Why Do These Charges Exist?

So, why is there a mileage limit on some car finance agreements? Well, leasing companies and finance providers implement these charges for several reasons:

1. Protecting Residual Value - Cars with lower mileage generally retain more value, which is crucial for leasing and finance companies when they sell the vehicle after your agreement ends.
2. Managing Wear and Tear - Higher mileage typically correlates with increased wear on the vehicle, potentially leading to higher maintenance costs.
3. Predictable Depreciation - Mileage limits help leasing companies and finance providers more accurately predict a vehicle's depreciation over the contract term.

How Much Can You Expect to Pay?

Excess mileage charges in the UK typically range from 3p to 30p per mile, depending on the car's make, model, and the terms of the agreement. For example:

• Economy cars might incur charges of around 5-10p per mile.
• Mid-range vehicles often see charges of 10-15p per mile.
• Luxury or high-performance cars can attract fees of 20-30p per mile or more.

To put this into perspective, if you exceed your mileage allowance by 5,000 miles on a mid-range car with a 12p per mile charge, you could be looking at an additional £600 in fees.

How is Excess Mileage Calculated?

Excess mileage is calculated by subtracting the agreed mileage limit from the actual miles driven. The resulting figure is then multiplied by the per-mile charge specified in your contract. Here is an example using the following scenario: 

Your pre-agreed annual mileage limit is 10,000 miles a year, but your actual mileage at the end of the year is 12,500 miles in total - this means you have an excess mileage of 2,500 miles to pay for. If the excess mileage charge is 10p per mile, the total charge will be 2,500 x £0.10 which equals £250. 

What Happens if You Go Over Your Mileage Limit?

If you exceed your mileage limit, you'll be required to pay the excess mileage charge at the end of your agreement. As we’ve highlighted, this cost could run into hundreds of pounds. In some cases, consistently exceeding your mileage may also be considered a breach of contract, potentially leading to additional penalties or early termination of the agreement.

What is Considered High Mileage?

The definition of high mileage can vary, but generally, for personal use over 15,000 miles per year is often considered high mileage, or for business use, over 20,000-25,000 miles per year might be deemed high. 

How Much Mileage Should I Choose?

Choosing the right mileage allowance requires careful consideration of your driving habits. Start by calculating your current mileage and review your driving patterns over the past year, including commutes, regular trips, and occasional long journeys. Factor in any anticipated changes in your lifestyle or work situation that might also affect your driving habits.

It's often wise to add a 10-15% buffer to your estimated mileage to account for unexpected trips. We recommend you calculate the difference in monthly payments between different mileage allowances; for example, sometimes, opting for a higher allowance can be more cost-effective than risking excess mileage charges.

The Impact on Personal Contract Purchase (PCP) Agreements

For those on PCP finance agreements, excess mileage can affect the Guaranteed Minimum Future Value (GMFV) of the car. This could impact your options at the end of the agreement, potentially making it more expensive to purchase the car outright or affecting your equity if you choose to use the car as a part-exchange.

Excess Mileage Charges FAQs

We hope our guide to excess mileage charges has provided you with some useful insight into how it works and why it’s in place. Below, we answer your most frequently asked questions about excess mileage and of course, you can reach out to us if you’d like any more information:  

Is an excess mileage charge enforceable?

Yes, excess mileage charges are generally enforceable as they are part of the contract you sign when leasing or financing a vehicle. These charges are clearly outlined in the agreement, and by signing, you agree to abide by the terms, including paying for any excess mileage you incur.

What is the excess mileage payment?

The excess mileage payment is the total amount you owe for driving more miles than allowed in your contract. It's calculated by multiplying the number of excess miles by the per-mile charge specified in your agreement. For example, if you exceeded your limit by 1,000 miles and your contract charges 10p per mile, your excess mileage payment would be £100.

How do I find out my excess mileage charge?

To find out your excess mileage charge you can check your lease or finance agreement for the stated per-mile charge. Double-check the agreed mileage limit in your contract and compare this to your current mileage. Then, calculate the difference and multiply by the per-mile charge. If you're unsure, contact your leasing company or finance provider directly. They can provide you with the most accurate and up-to-date information about your potential charges.

Can you change the mileage allowance on a lease?

In many cases, yes, you can change your mileage allowance on a lease. This process is often referred to as a mileage amendment or mileage adjustment. Bear in mind that mid-contract changes to increase your mileage allowance will likely raise your ongoing monthly payments. Decreasing your allowance might lower your payments, but this option is less commonly offered, and some companies only allow one adjustment per contract term.

What happens if I return a car with less mileage?

If you return a leased or financed car with less mileage than your agreed limit, unfortunately, you typically don't receive any credit or refund for the unused miles. The mileage allowance in your contract is a limit, not a target. This is why it's vital to estimate your mileage needs accurately at the start of your contract.

Can I buy additional miles in advance?

Some lenders offer the option to purchase additional miles in advance. This can be more cost-effective than paying for excess mileage at the end of your lease. The cost per mile when bought in advance is often lower than the excess mileage charge. However, like unused miles in your original allowance, any prepaid additional miles that go unused are typically non-refundable.

Does excess mileage affect the car's warranty?

Excess mileage doesn't directly affect the manufacturer's warranty. However, most warranties are based on both time and mileage (e.g., 3 years or 36,000 miles, whichever comes first). If you significantly exceed your mileage allowance, you might also exceed the mileage limit on your warranty, leaving you without coverage earlier than expected.

How does excess mileage impact a PCP (Personal Contract Purchase) agreement?

In a PCP agreement, excess mileage can affect the Guaranteed Minimum Future Value (GMFV) of the car. For example, if you choose to return the car, you'll need to pay the excess mileage charges. If you want to buy the car, the purchase price remains the same, but the car's actual value may be lower due to higher mileage. If you planned to use the car's equity as a deposit for a new PCP deal, you might find you have less equity (or none at all) due to the excess mileage.

How Octane Finance Can Help

Help is at hand! If you have any questions or concerns about excess mileage charges on your finance deal, Octane Finance is here to assist you. As experts in vehicle financing, we can provide clear, personalised advice on managing your mileage allowance and understanding potential charges. 

Our team of experienced professionals can help you navigate the complexities of your finance agreement and explain the implications of excess mileage. Whether you're considering a new finance deal and want to ensure you choose the right mileage allowance, or you're approaching the end of your current agreement and have concerns about excess mileage, we offer the support and expertise you need.