Special Offers
11th October 2024 
10 min read 
Among the extensive list of leasing dos and don’ts, there’s an important double whammy when it comes to your lease contract mileage:
- Do pick a realistic annual mileage limit.
- Don’t exceed your mileage allowance.
Mileage is one of the critical terms of your contract. It’s a significant factor in the cost of your lease, and it defines how much or, more accurately, how far you can drive the car.
Because it’s such an important element in determining car lease cost, many budding leasers find the temptation of taking a lower mileage limit in exchange for a cheaper deal too hard to resist, only to come unstuck at the end of their deal with excess mileage charges.
In this guide, we’ll get into detail on why excess mileage charges exist, how they’re calculated and, crucially, how to avoid them.
What is an excess mileage charge?
Mileage limits in leasing contracts
Every lease contract comes with an annual mileage limit attached. When you come to get a lease, it’s one of the key components of the deal you choose, alongside how much you want to pay upfront and how long you want the contract to be. Lease car mileage limits typically range between 5,000 and 30,000 miles, but you can ask for unlimited mileage, too.
The reason mileage is such an important factor is because it greatly affects the residual value (the estimated value at the end of the lease term) of the vehicle, which is the key metric on how a lease is priced up.
Your lease payments are based on the difference between the vehicle’s initial and residual value. So, the more mileage you do, the more you’ll pay to cover that increasing gap between initial and residual value, and vice versa.
Why do leasing companies charge for excess mileage?
Your leasing provider calculates your vehicle’s residual value and prices your lease according to the mileage limit you declare at the start of your contract. If you exceed that mileage, this will drive the residual value down further than your lease provider accounted for. This is where an excess mileage charge comes in.
In all likelihood, your lease provider will sell your lease car when you return it. They don’t want to be left out of pocket because of a lower-than-expected sale value due to higher-than-expected mileage. Excess mileage charges help to cover this difference.
How are excess mileage charges calculated?
Calculating charges
Excess mileage charges are calculated based on a few factors:
- The make and model of the vehicle.
- Your pre-agreed mileage limit.
- Your finance provider.
- The total mileage on the vehicle when it’s returned.
Using the above, excess mileage charges are priced anywhere between 3p to 30p per mile. While this doesn’t sound much, it adds up very quickly – particularly if you’re in a high-end vehicle that commands a penalty charge at the higher end of that bracket.
Another thing to note is that excess mileage charges on a car lease are priced to be intentionally more expensive than if you’ve paid for the equivalent mileage limit upfront.
Example calculation
Let’s look at a simple example breakdown of how an excess mileage charge would work for a vehicle on a four-year deal:
Deal type: PCH – new car
Contract length: 4 years
Annual mileage limit: 10,000 miles (so 40,000 miles total for the full contract)
Excess mileage charge: 10p per mile
Total mileage at end of contract: 50,000 miles
Excess mileage: 50,000 – 40,000 = 10,000 miles
Excess mileage charge: 10,000 x £0.10 = £1,000
Bear in mind that if the example vehicle carried an excess charge of 30p per mile, the same calculation would result in a £3,000 excess mileage charge. If it were at the other end at 3p per mile, it’d be £300. That’s why it’s essential you’re aware of the excess mileage charge on your vehicle from the start.
Of course, accounting for the extra 10,000 miles upfront would carry an additional cost as part of the lease, but this wouldn’t be close to the excess fee.
Common situations leading to excess mileage
Leasers who end up with excess mileage charges often find themselves caught out by a certain driving habit or error of judgement. Here are three of the most common:
Long commutes
Since the pandemic, commuting mileage has plummeted. NimbleFins found the average commuter mileage for 2022 was just 2,200 miles. In fact, the total mileage for the average car in the UK sat at a meagre 6,600 miles for the year.
However, we live in a divided working world. While some may head into the office once a week, others still do the work run Monday-Friday. If you’re closer to the latter than the former, don’t underestimate your commuter mileage.
Lifestyle changes
Have you moved home recently? Changed job? Even changed your weekly pattern to head into the office more often? Be aware of a lifestyle change sneaking your mileage up.
Even an extra five miles added to your round trip each day works out an extra 1,300 miles per year.
Ad hoc mileage
As we mentioned at the start of the guide, it’s tempting to take a low mileage figure in exchange for a cheaper monthly rate, but it’s essential you make a conscious effort to calculate all potential sources of mileage.
Don’t forget about private and social travel that doesn’t follow a pattern – taking the car away for a long weekend or holiday, seasonal trips, even regular errands and short trips – when coming up with a mileage figure.
How to avoid excess mileage charges
Plan your mileage
The best way of avoiding excess mileage trouble is to estimate your projected mileage as accurately as possible before you go out and get a lease – and to keep doing it once you’ve got one. Some of the most effective ways to do that are:
- Track your current mileage: keep a log of your driving habits, note any changes in your routine and record your odometer at the start and end of each month.
- Use technology to help: mileage tracking apps are readily available to track your movements automatically.
- Establish weekly and monthly patterns: Break down your travel into different time windows to get a more detailed breakdown of your driving habits.
- Factor in ad hoc travel: account for irregular journeys by coming up with an educated buffer in your estimates.
Purchase additional mileage upfront
Paying for the equivalent mileage upfront will always be cheaper than paying for it afterwards via excess charges.
What you should be aware of, however, is going overboard with paying for too much mileage upfront if you’re not going to use it, as you will end up out of pocket.
Annual mileage brackets can be quite spaced out – for example, most lease deals online have annual mileage limits that jump from 5,000 to 10,000 miles with no option in between (although you should be able to call and find a suitable middle-ground figure if you have one in mind).
Say you took a deal at 10,000 miles a year and only ended up doing 5,500 miles; you’d have been better off financially choosing an annual mileage of 5,000 and paying the 500-mile excess. Getting this right comes back to estimating your mileage accurately and finding a suitable sweet spot with your lease contract mileage.
Efficient driving habits
Carpooling. Combining trips. Avoiding long stretches of motorway. Using public transport. There are plenty of ways to manage your mileage to fit your limit.
What’s more, your annual mileage limit is not restricted to the year. So, if you take a 10,000-mile annual limit on a three-year deal, you have 30,000 miles to play with in total, not a strict 10,000 per year. That means you could do 5,000 miles for each of the first two years and 20,000 for the last – whatever suits you.
What to do if you exceed your mileage limit
Options at the end of the lease
Exceeding your annual mileage limit may be inevitable. If that’s the case, you need to look ahead to how you’re going to manage the charges at the end of your lease agreement. The good news is there are usually a variety of options available to you:
- Lump sum payment: the simplest option. Pay off your excess charge in full. If you’re struggling to make the payment in one go, you can always ask your provider about a payment plan.
- Lease extension: if you think you can reduce your mileage going forward, or you’re happy to revise your monthly payments, you can ask your provider about extending the lease. Adjusting your terms and extending the deal can help accommodate the excess charges until they’ve been taken care of. Extensions like these can often be done on a month-to-month basis to help manage the situation, plus you’ll still have use of the car.
- Roll the charges into a new deal: if you’re interested in taking up a new lease, you could take the charges forward into the total cost of a new lease, spreading the excess payment across the course of the contract term.
Negotiating mileage terms with your leasing company
If you can see excess mileage issues around the corner, talk to your leasing company about adjusting your mileage. As we’ve talked about already, paying upfront for mileage you’re going to use is always cheaper than paying the excess afterwards.
Your monthly rates will increase a bit, but it’ll save you from any unnecessary penalties.
FAQs on excess mileage charges
Can I change my mileage allowance mid-lease?
You should be able to, yes, but this is at the discretion of the leasing company and funder. Most leasing companies won’t allow you to amend your mileage within the first 12 months, but after that, you can apply to either raise or lower your annual limit as per your requirements.
What happens if I exceed my mileage limit?
You’ll be charged at the pre-agreed rate established when you took out the lease. This will be anywhere from 3p to 30p per mile.
Is it worth buying extra mileage upfront?
If you’re going to use it, it’s always more cost-effective to pay for additional mileage upfront than pay for it later via excess charges.
Just be wary of buying mileage you might not end up using, as you may end up out of pocket if you end up using substantially less than your annual limit.
Build a cost-effective deal with Hippo
We’d love to help you find a great lease deal (with the right mileage limits).
We’ve got a massive leasing range featuring limited-time leasing special offers, great used car lease deals and affordable options for bad credit and no-deposit customers.
For more in-depth information, explore our helpful guides. If you’re interested in leasing a car through a business, discover how business car leasing works. We also break down the pros and cons of company car vs car allowance to help you decide. Confused about PCP vs leasing or PCP vs PCH? We’ve explained the differences. And for a closer look at how much it costs to lease a car, check out our breakdown.
