Annual mileage is a car finance term that refers to the mileage limit for a PCP financed vehicle, as stated on the finance agreement. As this refers to a PCP loan product, which is designed to cover the depreciation of the vehicle during the loan term, this annual mileage limit helps preserve the car's residual value.
The residual value is important to the lender, as it is used to calculate monthly payments for the loan and ensures that no loss on the vehicle occurs at the end of the agreement.
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The exact penalty will be set out before you sign the loan 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.
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 number 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.
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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