Understanding mileage allowance: what it is and why it matters
Mileage allowance is one of the most important factors to consider when you are leasing a vehicle. It can have a major impact on the cost of your lease and can influence your overall driving experience. In this article, we will help you understand what mileage allowance is and why it matters.
What is mileage allowance?
Mileage allowance is the number of miles that a leasing company allows a lessee to drive the vehicle during the lease term without incurring additional charges. This amount is specified in the lease agreement and is usually expressed as a certain number of miles per year or per month.
For example, if you lease a car with a mileage allowance of 12,000 miles per year for a three-year term, you would be allowed to drive up to 36,000 miles without being charged for excess mileage.
Why is mileage allowance important?
Mileage allowance is important because it directly affects the cost of your lease. In most leasing contracts, the monthly payment amount is determined based on the anticipated depreciation of the vehicle over the lease term. The more miles you drive, the faster the vehicle depreciates and the higher the cost of your lease.
If you exceed your mileage allowance, you will be charged for the excess miles at a predetermined rate. These charges can add up quickly and can significantly increase the cost of your lease.
- It is important to accurately estimate your annual mileage when negotiating your lease terms to ensure that you choose a mileage allowance that is appropriate for your needs.
- If you think you will drive more than the allotted mileage, you may want to consider negotiating a higher mileage allowance or looking for a vehicle with a more generous allowance.
- You should also be aware of the penalties for exceeding your mileage allowance and factor them into your budget.
What factors affect mileage allowance?
The mileage allowance for a lease can be affected by a variety of factors, including the type of vehicle, the length of the lease term, and the anticipated resale value of the vehicle at the end of the term.
Luxury and high-performance vehicles typically have lower mileage allowances than economy cars, as they tend to depreciate faster and are more expensive to repair and maintain. Shorter lease terms may also have lower mileage allowances, as the vehicle will retain its value better over a shorter period of time.
The anticipated resale value of the vehicle at the end of the lease term is also a key factor in determining mileage allowance. Vehicles that are expected to retain their value well may come with higher mileage allowances, as the leasing company will be able to recoup more of the vehicle's value when they resell it.
What are my options if I exceed my mileage allowance?
If you exceed your mileage allowance, you will typically be charged a per-mile fee for every additional mile driven. This fee can vary depending on the leasing company and the type of vehicle, but is usually in the range of $0.10 to $0.25 per mile.
If you anticipate exceeding your mileage allowance, there are a few options you can consider:
- Buy additional miles upfront: Some leasing companies allow you to purchase additional miles at a discounted rate when you sign your lease. This can be a good option if you know you will be driving more than your allotted mileage.
- Buy out your lease early: If you are nearing the end of your lease term and have already exceeded your mileage allowance, you may be able to buy out your lease early to avoid additional charges.
- Roll the excess mileage into a new lease: If you are planning to lease another vehicle after your current lease term ends, you may be able to roll the excess mileage charges into your new lease. This can be a good option if you don't want to pay the charges upfront.
In conclusion
Understanding mileage allowance is essential when leasing a vehicle. By carefully considering your driving habits and estimating your annual mileage, you can choose a mileage allowance that is appropriate for your needs and avoid costly charges for excess mileage. When negotiating your lease terms, be sure to ask about mileage allowance and factor it into your budget.