Excess mileage

Definition

Excess mileage is when you go over the annual mileage limit that is sometimes set on a finance agreement.

Why do some finance packages have mileage limits?

On some types of finance products, in particular Personal Contract Purchase (PCP), you don’t own the car at the end of the agreement. You often have the option to return the car to the lender once you’ve reached the end of the term length.

As a result, you aren’t financing the entire cost of the car but the loss of value in between the start and the end of the agreement, in other words the depreciation in the car’s price. The finance provider will calculate this at the start of the agreement.

It is important for the provider to preserve the value of the car so it matches the value at the end of the agreement. They will do this in a number of ways. You may have to service your car at specific garages, follow condition requirements and stick to annual mileage limits.

How much will I be charged for excess mileage? 

If you exceed the mileage limit on the car, you will be charged at a rate set by the provider at the start of the agreement. Normally, you will be charged a fixed amount for each mile you exceed the mileage limit. This will be calculated when you return the car at the end of the agreement.

It’s always important to think about how much you’ll drive the car during the finance agreement. For a rough idea, take a look at the mileage readings on your cars MOT certificates over the last few years. You’ll be able to see the difference each year and work out your limit. Just be careful, if you are changing job you may end up using your car more. You may also want to drive your car more if it’s a nicer newer model.

What should I do if I am going to exceed the mileage limit?

If you think you are going to exceed your mileage limit and don’t want to pay, then the only option is to drive your car less. If you can avoid using your vehicle for a few months, you will be able to give yourself some breathing space on the agreement. This option is only really suitable if you are having a short-term increase of usage, or right at the end of your finance agreement.

If it’s unavoidable and you are definitely going to exceed the mileage limit, then you should contact the finance provider. They will be able to explain whether it’s better for you to change the mileage limit (albeit with higher monthly payments) or just to pay the excess mileage charge. Check the terms and conditions in your contract too, as you’ll be able to see what exactly will happen when you go over the limits set by the provider.

But the best option is to always calculate your annual mileage in advance and give the provider an accurate reading, with some extra leeway added for you.