June 23, 2023
More than five million cars were bought on finance in the UK between October 2020 and September 2022, accounting for a considerable 15% of all licensed cars. Even more if you include pre-existing agreements and those registered since.
With the cost of a vehicle spread over monthly payments, rather than an upfront lump sum, such deals offer a more affordable means of motoring month to month – especially appealing for companies looking to control cash flow. Contract terms can also be tweaked for further price drops, but doing so could see you stung with extra charges when the agreement ends.
Using anonymised data, we estimate how many UK company car and van drivers are currently at risk of excess mileage charges and how many millions – or even billions – of pounds could be collected come the end of current agreements.
- Almost a quarter (24%) of business lease drivers are currently over their mileage limits
- The average excess mileage charge per driver is £8,981, or £3,006 if agreements are ended early
- Applied to the number of drivers who bought their car on business finance Oct 2020-Sept 2022, up to £1.6bn could be payable across the UK
- Van drivers over their mileage are currently projected to each owe £18,611 in excess mileage charges, or £4,380 if agreements are ended early
UK Company Car Drivers Face up to £1.6bn in Excess Mileage Charges
Analysing mileage data for almost 700 Wessex Fleet lease contracts, we found that 24% of company car drivers are on target to breach their mileage limits and incur significant excess mileage charges.
The expected charge for each of these drivers, based on a fee of 32p per mile above the pre-agreed limit, is a staggering £8,981. Multiplying that by the 719,900 cars bought on business finance and the above proportion of at-risk drivers means up to £1.6 billion pounds is payable when current agreements end. Including agreements started before and after October 2020-Septemer 2022 could increase that figure further.
Any excess mileage on a business lease will be invoiced to the business. However, some companies may pass this cost onto the individual drivers depending on the terms of their contract.
Drivers Looking to Avoid Charges and End Their Agreement Early Could Also Pay up to £519m Combined
If a finance agreement is ended early, a pro-rata mileage limit is calculated. This is the number of miles you are expected to have driven in that time. If a three-year agreement with a limit of 6,000 miles per year is ended after two years, for example, a pro-rata limit of 12,000 miles will apply. It would be 18,000 miles over the full three years.
We found the average excess mileage charge if ending an agreement early to be £3,006 per driver, or an estimated £519m for all drivers on business finance deals in the UK.
On Average, Van Lease Customers Face £19k in Excess Mileage Charges at the End of Their Contracts
Of the 243 van contracts we looked at, 23% are currently over the pre-agreed mileage. Comparing the current mileage with the expected figures, based on how many months of each contract remain, we estimate the average excess mileage charge at the end of the agreement is a huge £18,611 for each driver currently over their expected miles. That’s more than double the estimated charge for car drivers.
Van drivers leasing their vehicles also face steeper charges than car drivers for ending their agreements early, with an average of £4,380 per driver in excess mileage fees – 1.5 times that of cars on business finance.
Companies with 100-Strong Fleets Face Charges of More Than £1m
The average estimated excess charge is also likely to worry companies managing business fleets. Applying the £13,796 estimate (an average of the estimated excess mileage charges for cars and vans over their mileage) to each vehicle in a fleet, the total charge could have a devastating impact.
The average excess mileage charge for fleet vehicles over the mileage limit
Number of fleet vehicles over the agreed mileage
Estimated excess mileage charge at contract end
Calculations based on an excess mileage charge of £13,796 per vehicle, which is an average of the figures for cars (£8,981) and vans (£18,611).
Fleets of only ten are looking at the best part of £140,000 in charges, while those with 100 vehicles are facing a potential bill of £1.4m.
Small- and medium-sized entreprises (SMEs) – those with less than 250 employees – account for 99.9% of UK businesses, and make a median profit of roughly £312,000 per year. If even a fraction of those employees drive business vehicles beyond the mileage limit, and the company is liable for the excess charges, there could be serious financial implications.
Three Tips to Manage Your Mileage and Avoid Extra Charges
Drivers in this situation may be able to manage their future mileage so that it doesn’t breach the total mileage limit:
- Pick a realistic mileage limit in the first instance. The ultimate preventor is setting a realistic mileage limit before signing a lease agreement. Underestimating may save you money on monthly payments, but excess mileage charges could undo the benefit. It’s worth overestimating so that you have more leeway from the off.
- Try to drop your mileage if you initially go over. Some months or years you may drive more than others, but it could then average out across the term. For example, if you’re one year into a three-year deal and have driven more miles than the yearly mileage limit, you could lower your mileage in years two and three so that your overall mileage doesn’t breach the total mileage limit – which is calculated by multiplying the yearly limit by the duration of the agreement in years.
- Consider a mileage adjustment with your provider. This will likely increase monthly payments but it could help you avoid costly excess mileage charges when the vehicle is returned, as the total limit will be higher.
Simon Naylor, Director at Wessex Fleet, added: “With many businesses making use of company cars again following the pandemic, we are starting to see an increase in mileage around the country.
“To avoid excess mileage charges, it’s always best to overestimate before signing a contract. If you’re in the middle of a term and are already close to or beyond the limit, however, a mileage adjustment may be the best option. This may cost more per month, but it could be more manageable than one large excess charge at the end of a contract. According to our research, getting a hold on your company’s mileage can save hundreds of thousands of pounds, or even millions for larger fleets, each year.”
Anonymised Wessex Fleet business lease contracts (672 in total) were analysed for the proportion of drivers at risk of excess mileage charges. We calculated how far through the contract term and pre-agreed mileage each driver was to estimate the figures, based on a charge of 32p per mile (an average of Wessex Fleet’s excess mileage charges across all vehicles).
We also applied the findings to the number of vehicles bought on business finance between October 2020 and September 2022 to estimate the UK-wide charges.
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