That there is a charge for excess mileage is something car lease customers already know. However, not many may be that familiar with the details of how the amount is computed. It is something every prospective car lease customer needs to know.
It’s not enough to simply look for cheap car lease deals. There are other important details that should also be considered in finding the right vehicle to lease. In particular, it helps to know how to calculate the charges for excess mileage. The way to compute this fee is not as straightforward as many may think.
Typically, an excess mileage charge in the UK is set at 6p to £1 for every mile exceeding the allowance, not inclusive of VAT. Some companies, however, may impose a progressive rate. The charge per mile may increase if the excess reaches a certain percentage of the mileage allowance. A company may charge 20% more for every excess mile that exceeds 10% of the mileage allowance stated in the contract.
To illustrate, consider this scenario. Company A charges 6p for every mile exceeding the allowance of 10,000 miles per annum for a three-year contract. This charge increases by 20% if the total excess mileage reaches 10% of the mileage allowance. VAT is 20%. If the customer returns the vehicle with a mileage reading of 40,000, how much will the excess charge be?
In the situation above, the total excess is 10,000 miles computed as the difference between the total mileage allowance (10,000 miles x 3 years) and the mileage reading when the vehicle was returned to the lessor (40,000 miles). The 10,000-mile excess is more than 10% of the allowance (30,000-mile allowance x 10% = 3,000). Hence, the excess charge is 18,000p (3,000 miles excess below 10% of the allowance x 6p) plus 50,400p (7,000 miles x 7.2p). The 7,000 figure is the difference between the 10,000 total excess and 3,000 excess below 10% of the mileage allowance. The additional charge, on the other hand, is calculated as 6p + (20% of 6p).
With VAT included, the total excess charge is 68,400p (18,000p + 50,400p) plus 13,680p(20% VAT), which amounts to 82,080p or £820.80.
Different charges for different models
Many companies tend to charge varying excess mileage rates for different car models. Based on data collected in 2016, Audi cars are charged at 6p per mile while Mercedes, BMW, VW, and Ford are charged at 9p, 13.96p, 6p, and 6.66p per mile, respectively.
You don’t have to master the calculation of excess mileage charge as you compare your car lease options. You can always ask leasing companies to produce the numbers for you. What’s important is that you understand how excess mileage can greatly increase your bill if you are not careful with your choices. You need to reasonably estimate your mileage requirement to determine if it would be better to get a high-mileage lease instead of paying for excess charges.
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