Car leasing can be challenging to navigate due to various factors involved. This guide on mileage aims to clarify everything you need to know about leasing a vehicle, helping you understand the key aspects and implications.
Car leasing is a great choice for many, offering low monthly payments, flexibility in choosing your lease, and no worries about vehicle depreciation. Whether you're a business or personal customer, leasing can be a smart option. However, there are a few important decisions to make when leasing and a big one is the mileage agreement. When leasing, you must select the annual mileage you expect to drive with the vehicle.
You choose your mileage limit based on how many miles you expect to drive annually during your lease agreement. Typically, mileage ranges from 5,000 to 30,000 miles per year. This limit is set based on the vehicle's expected depreciation. The more miles your car covers, the faster it depreciates. So, a higher annual mileage will increase your monthly lease payment.
A leasing agency uses two main factors to calculate your payment: the finance charge and depreciation cost. The finance charge is the interest paid on the lease, while the depreciation cost is the difference between the vehicle's initial cost and its expected value at the end of the lease term. A higher mileage means the vehicle will depreciate faster, resulting in higher lease payments.
It’s essential to choose the correct mileage limit when leasing a vehicle. If you exceed this limit, you will incur a charge per mile for every mile over your allocated mileage at the end of your lease agreement. The rate varies by vehicle, so be sure to verify the specific charge for your chosen car.
How to pick the correct mileage
Look at your previous driving habits to estimate your mileage accurately. Check your MOT documents to see how many miles your last vehicle had. Consider how many miles you’ll drive with your current car for work and account for any additional mileage you may need. It's important to factor in all of this to determine the best mileage limit for your lease.
How Excess Mileage is Calculated
The charge for exceeding your mileage limit is calculated at a pence-per-mile rate based on the following factors: Each finance provider varies in their cost per mile for the vehicle, and the charge typically ranges from 5p to upwards of 30p, depending on the make and model. Therefore, it’s always worth ensuring you have enough mileage covered in your agreement.
What Happens If I Need to Change My Mileage?
If your circumstances change and you anticipate going over or under your mileage halfway through your lease, you can potentially adjust your mileage agreement. Keep in mind that this will affect your monthly payments, and they may not remain the same after making the change.
