Annual mileage

Definition

Annual mileage refers to the number of miles you drive each year. When you Apply for car finance you’ll sometimes be asked your annual mileage, depending on the finance product.

Why is annual mileage important?

With certain finance products, annual mileage is an important factor in determining the cost of your Monthly Repayments. As it helps the lender calculate the Depreciation of the vehicle over the length of your contract.

For example, with Personal Contract Purchase (PCP) and Car Leasing, you’re not paying to own the car. Instead, your monthly payments cover the vehicle’s depreciation, with finance interest added on.

Put simply, the higher the mileage, the greater the depreciation, and the more you’ll pay monthly.

Annual mileage limits

Your annual mileage limit is agreed at the start of your contract. So, it’s important to consider this carefully, as exceeding your mileage limit will result in an excess mileage charge (normally only a few pence per mile).

While this may not seem a lot, it can quickly add up. The best way to avoid the charge is to set a realistic limit upfront.

How can I calculate my annual mileage?

It’s a good idea to get a rough estimate of the number of miles your drive each year before setting your annual mileage limit.

You can do this by taking note of your mileage at the start of the week, and again at the end. This will give you your weekly mileage average.

To get your annual mileage, simply multiply your weekly mileage by 52 weeks. But remember to factor in some extra mileage for holidays, longer trips and emergencies.

Alternatively, you can look at your past MOT certificates and compare the difference in mileage year-on-year.

What can I do if I start to exceed my annual mileage?

It can be hard to accurately predict your future mileage, especially if your circumstances change unexpectedly.

But don’t worry. If you do find yourself exceeding your mileage, you can get in contact with your finance provider early and request to increase your allowance.

This will result in higher monthly payments, but if you gauge your mileage accurately, it should cost less than paying an excess mileage charge.

Can I get car finance without an annual mileage limit?

Yes. If you opt for a conditional sale agreement such as Hire Purchase (HP) or Lease Purchase, annual mileage restrictions don’t apply.

This is because you’re paying to own the vehicle outright, rather than simply covering the cost of depreciation and interest.

And because you’re not returning the vehicle to the lender, the Residual Value of the vehicle is irrelevant.