Unlimited Mileage Leasing – What is it? Does it exist?
If you are looking to contract hire a car, or van, then one of the primary questions which you will be asked is your annual mileage. This is highly influential on the monthly rental you will pay each month, for example a car covering 8,000 miles per annum will be significantly cheaper than a car covering 50,000 miles per annum. Effectively, the higher mileage the higher the depreciation on the vehicle.
Choose a Suitable Mileage Contract...
When choosing your annual mileage it is important that you select a contract which is suitable for your needs and requirements (or that of your business). Many credit brokers and car leasing organisations will advertise their “headline” deals on mileages of 5,000 to 8,000 per annum. If you are covering this level of mileage then this will present no issue to you. However, for customers covering mileage beyond this, this would be an unsuitable contact to undertake.
With most contract hire arrangements, if you exceed the annual mileage on your contract you will encounter an excess mileage charge. The excess mileage charge is not incurred on annual basis; this is charged to you at the end of the contract once the vehicle has been collected. For any mileage beyond the contract level, you will be charged an amount shown as “pence per mile” in accordance with your contract. This will have been highlighted to you at a) order stage; and b) contract stage.
Tiered Mileage Charges...
Some finance companies will operate tiered mileage, which essentially means that if you go so far over your annual mileage i.e. 115%, you will be charged excess mileage at a higher rate. What customers also need to understand is that not every finance company will allow you to increase or decrease your mileage during the contract, in particular for “regulated” customers (individual, sole trader or small partnership). The terms and conditions of each finance company are not identical so before proceeding, make sure you are aware of the key conditions.
Unlimited Mileage Contracts...
With above in mind, how is it possible to have an unlimited mileage contract? The truth is that there are very few contract hire providers who will allow this. Nearly every finance company needs to know an annual mileage before the contact begins so they can accurately calculate your monthly rental. While some will allow ultra-high mileage, i.e. 60,000 and 70,000 miles per annum, this annual mileage still sets the monthly rental. Some rental or flexi-lease companies will allow these arrangements for up to 12 months. Where “unlimited mileage” tends to arise for long-term requirements, is in the cases of finance lease and personal contract purchase.
Picking an Unlimited Mileage Finance Lease...
A finance lease is a type of lease which is somewhat different to contract hire. This has become very popular with many van and commercial vehicle operators as this allows the customer to benefit from equity being built-up within the product. The reason for this is that the vehicle is operated for a fixed period of time (2, 3, 4 or 5 years) and is then disposed of at the end of the contract. In most cases the customer is responsible for disposing of the vehicle, although some finance companies may do so on your behalf. In contrast to contract hire, the vehicle is NEVER returned to the finance company. For the customer, this does offer some flexibility in that the annual mileage the vehicle is covering will not impact the customer by way of excess mileage. What happens with finance lease, is that the monthly rental and the final rental (balloon) is calculated based on the annual mileage you supply. If the vehicle covers fewer miles, the vehicle may become more valuable than the final rental – this means any value above the final rental can be retained by the customer. If the mileage exceeds that of the contract, the complete opposite can be said, in that you will essentially have a vehicle that may fall below the value of the final rental. So with a finance lease, while theoretically you can cover “unlimited mileage”, the risk of any shortfall for the final rental is passed directly to you as the customer. Regardless of the vehicle mileage, the final rental must be satisfied.
Obviously for customers covering different mileage from one year to the next, this may offer a more flexible arrangement. However, the mileage is still a relevant consideration.
Picking an Unlimited Mileage PCP Lease...
With personal contract purchase (PCP) a similar situation arises to that of the above. While a PCP is a good way in which to operate (or own) a car for a personal customer, the annual mileage does need to be considered. The mileage you supply to the finance company will establish the monthly payments and the guaranteed future value (balloon). Unlike finance lease, a PCP offers a way in which the customer can return the vehicle to the finance company if required. For a customer who will definitely purchase the vehicle, the annual mileage is a less relevant consideration, as any mileage repercussions beyond the contract is being absorbed by the customer. If the car is never returned, then the finance company are completely unaware of the mileage. If you do want to return the vehicle in a PCP arrangement, then the annual mileage is relevant. For any mileage over the contracted amount, the customer will pay excess mileage as per a contract hire arrangement. In cases where the vehicle mileage falls below the contract, you may have a vehicle which is more valuable than the GFV. In these cases, you may wish to purchase the vehicle from the finance company and sell this to a third party, as any equity will be yours to retain.
Whether you are a personal or business customer, mileage will be a relevant consideration. However, as you have read above there are finance products available to you which allow you to operate an “unlimited mileage” situation but with the clear understanding that the risks of the vehicle’s mileage will be absorbed by you rather than the finance company.
Before undertaking an “unlimited mileage” contract, make sure you understand what the financial product actually is.
Learn more about leasing in our help and advice section or read real lease car reviews and news in our motoring blog. You can also talk to one of our helpful team to discuss your unlimited mileage options before undertaking a new lease deal.