Annual Mileage explained

Annual Mileage is a car finance term that refers to the amount of mileage a financed vehicle is allowed to drive each year, as stated on the finance agreement. This limit is designed to preserve a vehicle’s residual value. Exceeding this annual mileage limit normally incurs a penalty.

Creditplus definition of Annual Mileage

Annual Mileage is a set amount of miles specified on a car leasing agreement. For each year of the agreement, a maximum amount of miles that the car can drive is set and should not be exceeded. This limit is decided when the agreement is taken out by both the lender and the customer. The limit is in place to ensure the car’s predicted value at the end of the car finance agreement is preserved. The more miles a car drives, the more value it loses. In a car leasing package, the car is returned at the end of the agreement period, it is in the lender’s interest to set limits to preserve the value in the car when it’s returned.

It’s also important for the lender to preserve the residual value at the end of the agreement, as this is how the monthly rental payments are calculated at the start. Lenders will insist on annual mileage limits to ensure that the car does not lose too much value over the agreed leasing period.

The good news is that, as a customer, you have some say in what the annual mileage will be. It’s important that you give a realistic expectation of the amount of miles you will complete each year. If you give an annual mileage that is too low, you will go over the yearly limit and end up incurring a penalty. If you set your annual mileage too high, then you will be paying too much for your monthly payments.

What’s the penalty of exceeding the limit?

The exact penalty will be set out before you sign the leasing agreement. Normally, it’s set at a few pence per mile. This can quickly add up if you consistently go over the annual mileage limits during the term of your agreement.

How can I calculate my yearly mileage?

You may want to try and calculate how many miles you drive each year before you go into any agreement. There are tools online that can help provide you with a figure. Alternatively, you can look at the MOT certificates for your current car over the previous years and look at the difference in mileage between certificates.

You can also make a note of your mileage at the start of the week and the end, recording how many miles you complete each week and multiplying it by fifty-two. You will also want to add some leeway to take any longer trips or emergencies into account.   


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