What happens if you go over your mileage limit on a financed car?
27 November 2023
By Joy Pearson
When you enter into a car finance agreement, particularly with lease and Personal Contract Purchase (pcp) arrangements, you are bound by a predetermined mileage limit. This is not an arbitrary figure; rather, it's a calculated element that ensures the vehicle remains within a value range that reflects its expected wear and tear. The mileage cap helps the finance company mitigate the risk of excessive depreciation, ensuring that if the vehicle is returned, it remains sellable at a fair market price.
Mileage limits are a critical part of a finance agreement because they are directly tied to the car's depreciation. Each mile driven has an impact on the car's overall value - not just through mechanical wear but also by setting expectations for future buyers. The presence of a mileage clause in your contract is a reminder that the car's future value is being protected, which is particularly important for the lenders, who might need to sell the car once the agreement ends.
Should you find yourself exceeding the mileage limit set in your contract, you will be subject to excess mileage fees. These fees are there to offset the higher than anticipated depreciation of the vehicle. The cost is typically a certain amount per mile over the agreed limit, and this rate is clearly defined in your finance agreement. It's vital to keep an eye on your mileage throughout the term of the agreement to avoid a hefty bill at the end.
Exceeding your mileage limit can be a red flag for finance companies. It indicates a potential risk that you might not adhere to contract terms. As a result, future finance agreements might come with higher interest rates, stricter terms, or in a worse-case scenario, a complete denial of financing. Maintaining a good record with your current finance company can keep your options open in the future.
Proactive steps to manage excess mileage:
Purchasing additional miles: Reach out to your finance company and inquire about buying extra miles. This is often a more cost-effective solution than paying the excess mileage fee after your contract ends.
Adjusting your driving habits: Consider how you can reduce the use of your financed vehicle. This might mean, carpooling, using public transport for your commute, or hiring a rental car for long-distance travel.
Re-negotiating your contract: Contact your finance company to discuss your situation. They may well be willing to renegotiate the terms of your contract to increase your mileage limit, although this may affect your monthly payments.
What if you're unable to pay the excess mileage fee? Avoiding payment can lead to legal action, affect your credit score, and limit your ability to borrow in the future. It's crucial to engage in dialogue with your finance company to find a solution. They may offer a payment plan of other arrangements to settle the debt.
Staying aware of your mileage and understanding the financial implications of exceeding your limit are essential components of managing a car finance agreement. It's far better to approach the issue head-on than to be caught off guard with unexpected charges. By keeping open communication with your lender and carefully monitoring your mileage, you can ensure that you maintain control over your financial commitments and avoid unnecessary expenses.