Excess mileage charges on a lease car explained... and how to avoid them

One of the most important things you’ll have to work out before taking on a leasing contract is how many miles you’ll drive per year. The annual mileage you agree has a tangible effect on the monthly price you’ll pay for the lease: fewer miles = lower price. That’s because a car with lower mileage will be worth more at the end of the contract, which means the lease provider can charge you less.
It's tempting, therefore, to underestimate how many miles you’ll do in order to get a slightly cheaper lease deal. It’s a false economy though, because any saving you make could be wiped out (and then some) by excess mileage charges at the end of your contract. (Full disclosure: this writer has fallen into that trap before, and realising that you're 'running out of miles' way before you should be isn’t that enjoyable.) For some people, working out their annual mileage is very easy: those whose journeys are consistent and predictable, especially if they’ve been doing similar mileages year upon year. But for others, it can seem like an unknown and involve a bit of guesswork. It can even be a barrier that stops people from considering leasing. That’s understandable, but it needn’t be an issue. It just takes a bit of forward planning.

An excess mileage charge is an amount of money set by the leasing provider for every mile that a car is over an agreed limit at the end of the lease term. When choosing your lease contract, the leasing provider will allow you to set the number of years you wish to keep the car for, and the number of miles you’ll do per year. Usually between two- and five years, and 6,000- to 30,000 miles.
Excess mileage charges exist because, again, your monthly lease price is based on the car’s particular age and mileage on the day it’s handed back, which determines its value. The leasing company makes the ‘lost value’ of a car with excess miles back with mileage charges. The charge varies from company to company, but it can be anywhere between 5p and 45p per mile. It’s an easy number to find out – it’ll be in the terms and conditions of the lease deal, and you should check it before you sign the contract. Let’s say it’s 30p per mile, though, and you have a lease deal over two years with an agreed 6,000 miles per annum: 12,000 miles in total. If you hand the car back with 15,000 miles on the clock, that’s 3,000 excess miles. You’ll be charged 3,000 x 30p = £900. That’s an extra £75 per month, effectively. So you can see why it’s a good idea to overestimate the annual mileage you’ll do…

Even if you’re not sure how many miles you’ll do in future, it’s fairly easy to work out an annual mileage that will give you enough flexibility to avoid excess mileage charges.
First, consider your regular journeys: work, school drop-offs, shopping trips… any places you go consistently. Google Maps is a good tool to work out the distances of these regular round trips. Add those up for a typical month and multiply by 12 for your yearly total. Then think about any other trips you might do less regularly or are less predictable. Do you have friends or family that live much further out? Do you have kids with social lives who like to use you as a standby taxi service? (Classic.) Do you take your car on long day trips or weekends away? Work that out, add it to the above total, then add a little more for safety (an additional 1,000 miles, say – they add up quickly). The other thing to note, however, is that there's flexibility in when you do your miles. You don’t necessarily have to stick to a pro-rata mileage each month – or even each year. The most important thing is that the car is at (or ideally a little below) the agreed mileage when you hand the car back. Of course, it’s not advisable to go way above your agreed mileage at any point during your contract, then try to ‘claw it back’ towards the end (which is basically what I had to do, as above). That’s because if, for whatever reason, you need to hand the car back before your contract ends, you could receive a pro-rata excess mileage charge on top of an early termination fee. As ever, make sure you check your contract for those details before you sign. Still, that flexibility within the mileage means you don’t have to worry too much about exactly what your mileage is from month-to-month. It’s just something to keep an eye on.

If you’re already partway through a lease contract and you think you’ll go over your agreed mileage significantly, it’s worth talking to your lease provider. It’s sometimes possible to make a change and bump up your limit by paying more per month – this is at the discretion of the leasing funder. As before, do the sums to see if it’ll be cheaper for you to go down that route, if it’s an option. You might find that paying the excess mileage charge is better for you, if the cost-per-mile is on the low side.
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