Fair wear and tear

Definition

Fair wear and tear is a term used by a finance provider to describe the amount of superficial damage they will accept on a car they are leasing.

What exactly is fair wear and tear?

When you take out a car finance product like Personal Contract Purchase or Lease Purchase, you don’t necessarily have to keep the car at the end of the agreement. You have the option to return the car to the finance provider.

As a result, there are often certain restrictions placed on the usage of the car by the finance provider. This is because that the amount you borrow to finance the car across the term is the cost of the depreciation of the car’s value between the start and end of the agreement. This depreciation is calculated at the start of the agreement. That means the finance provider has to ensure that the car’s value at the end of the agreement is the same as they predicted at the start.

To do this, the finance provider will impose certain restrictions on the use of the car. The most common of this is an annual mileage limit, a restriction on how much you can drive the car across the year. Other restrictions may include only servicing the car at approved garages or mechanics, and keeping the car in a condition that has been set out at the start of the agreement. In other words, fair wear and tear is allowed.

Fair wear and tear may include things like scuffed seats, minor scratches, and just signs that the car has been used like fingerprint marks on dials and touchscreens etc. It’s minor damage at the most, and could reasonably be ascribed to using the car on a daily basis.

Who decides what fair wear and tear is?

The car finance provider will set out clearly at the start of the agreement what is covered by fair wear and tear. This will normally be in the terms and conditions of the agreement. Be sure to read them carefully, and see what they have specified. If you are planning to use the car for any messy outdoor activities and feel like the car is going to get dirty, you should explain this to the finance provider. They may adjust the cost of the agreement to match, so you don’t end up exceeding the fair wear and tear terms. The same can be said for if you have a young family, as the car will be used differently to someone looking for a car for their work or the daily commute.

What happens if I exceed the limits?

The finance provider should detail on the agreement what penalties there are for exceeding any fair wear and tear restrictions. Your vehicle may be subject to an inspection and you might have to pay the difference between the car’s value, and the value the dealer predicted it would have at the start of the agreement. You may also be charged to repair the damage. It will depend on the provider, so make sure you check at the start of the agreement to work out what will happen.