When looking for a Business Contract Hire (BCH), Personal Contract Hire (PCH), Finance Lease (FL) or Lease Purchase (LP) finance options, You will need to establish the mileage that you anticipate you will cover per year. This mileage is used to calculate the estimated future value of the vehicle in question. This is a vital part in the calculation and fundamentally generates the monthly payment and final payment that you will make for the vehicle.
If you get this wrong, It can be very costly for you or your business….
Exceeding the contracted mileage (BCH/PCH) will generate excess mileage charges that are added to the end of the agreement. These charges are generally charges PPM – Pence per mile (+VAT) and are outlined on both the vehicle quotation and the finance agreement provided. Getting the contracted mileage incorrect can spiral to £100’s of pounds in excess mileage charges that you have not anticipated or accounted for within your vehicle budget.
Getting the mileage right is just as important as ensuring that you select the most suitable and cost effective funding method for your vehicle If you get it wrong the outcome at worst could be disastrous.
Take a look at the examples below, These are real-life examples of what mileage allowance you may require.
10,000 Miles Per Annum:
That accounts for 833 Miles Per Month or 192 Miles Per Week
5 Day Working Week: 38 Miles per Day
6 Day Working Week: 32 Miles Per Day
7 Day Working Week: 27 Miles Per Day
15,000 Miles Per Annum:
That accounts for 1250 Miles Per Month or 288 Miles Per Week That accounts for 1250 Miles Per Month or 288 Miles Per Week
5 Day Working Week: 57 Miles per Day
6 Day Working Week: 48 Miles Per Day
7 Day Working Week: 41 Miles Per Day
20,000 Miles Per Annum:
That accounts for 1666 Miles Per Month or 384 Miles Per Week
5 Day Working Week: 77 Miles per Day
6 Day Working Week: 64 Miles Per Day
7 Day Working Week: 54 Miles Per Day
With excess mileage charges averaging circa 10 Pence Per Mile (+VAT) An additional 5,000 Miles over on a contract can cost in excess of £500.00+VAT on a Contract Hire (CH) or Personal Contract Hire Agreement.
Get the Mileage correct and you can save £100’s at the end of your agreement.
Finance Lease (FL) – The Importance of Choosing the Correct Mileage
Within the leasing industry, There is still is the flagrant disregard to mileage on a Finance Lease (FL) agreement.
Incorrect mileage has a significant impact on a Finance Lease agreement. That said, It still remains to be miss-sold as an UNLIMITED MILEAGE agreement by some vehicle suppliers. This can be due to a lack of understanding of the finance option or simply deceitful behaviours.
A massive part of being a compliant authorised FCA Finance Broker (The Financial Conducts Authority) is to ensure customers are treated fairly and with the recent introduction of Consumer Duty – Ensuring that the customer has a positive outcome and the finance agreement performs in the way that it was explained it would.
We ask ourselves at New Vehicle Solutions:
Is it fair to advise a customer that a Finance Lease is unlimited mileage when there is a Final Balloon Rental at the end of the agreement?
No… This is not a fair practice.
Is it fair to not even mention mileage through the qualification of customer and provide a quotation based on 10,000 Miles Per Annum or Less? No… This is not a fair practice
Is it fair for a customer to get to the end of a Finance Lease agreement and owe £100’s or even £1000’s more than what the vehicle is worth? No… This is not a fair practice.
Is it fair to offer a Finance Lease agreement that is clearly based on 10,000 Miles Per Annum to a high mileage business user?
No… This is not a fair practice.
At New Vehicle Solutions know that this is not fair to the customer, It is deceitful and maybe even unlawful.
We treat customers the same way as we wish to be treated – Fairly.
A Finance Lease Vehicle must be sold or part exchanged to an unrelated third party at the end of the agreement. The Sale Proceeds are then used to settle the Final Balloon Payment (Terminal Rental).
*There can be a secondary rental, Sometimes called a Peppercorn Rental period offered to extend the Finance Lease after settlement of the Balloon Rental – Terms and Conditions Apply.
If there is a shortfall in the vehicles sale value against the final balloon payment – The customer or their business are liable to make up the difference to settle the agreement.
If the vehicle is sold for a value that exceeds the final balloon rental, The customer retains the equity from the sale. On some occasions, The finance lease provider retains a small percentage of the sale value. This is called percentage of sale proceeds. This percentage can be anywhere from 0% to 15% of the vehicle sale value. This percentage would explained as part of the quotation process and also indicated within the finance agreement.
In the case of affordability, When you choose any finance option for a vehicle. You will consider the affordability of the finance agreement monthly payments. Can you afford to pay £100’s or £1000’s for a shortfall at the end of the agreement if the mileage you have chose is incorrect? You simply cannot afford to get this wrong.
Vehicle Valuation Considerations
There are many factors that attribute towards the value of a vehicle.
The better the condition, The more documented and substantial the service history, The more appealing colour and the higher the specification all add value to a vehicle.
In the case of mileage, The less miles the vehicle has covered. the more the vehicle would be worth.
You can have a fantastic condition, fully serviced and high specification vehicle in metallic colour. If the vehicle has covered 100,000 miles, It will drastically reduce the vehicles valuation. Mileage is a very important factor that you need to consider.