How excess mileage charges can cost you dearly

  • Excess mileage charges can add up to thousands
  • Higher mileage caps increase monthly payments
  • Ensure you know charges before exceeding limit

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Around 90% of new car finance deals are completed via a PCP deal. Generally, they're pretty easy to get your head around. However, one of the most important things to consider is your mileage limit.

The higher your limit, the greater your monthly payments.

But. Don’t think you can simply pick the lowest allowance possible to shrink your payments. If you exceed the mileage cap you can expect to be stung with excess mileage charges, assuming you don't buy the car outright at the end of the agreement. If you do buy the car at the end, then all bets are off and there are no excess mileage fees to pay.

What should you pay for excess mileage fees? Well, they vary wildly depending on what car you choose, and which finance company. Ford's excess mileage fees for PCP agreements generally vary between 5p - 10p per mile. Volkswagen's excess mileage charges are around 4p-8p. While we've seen them go as high as 40p-72p per mile when high-end cars like Aston Martins and Bentleys are financed through third-party providers.

Cover 1,000 miles per year more than you signed up for over a three-year deal at 72p per mile and you'll be hit with more than £2,000 in fines. Not exactly a representative figure for most people, we know, but it's worth pondering over.

In most cases these fees are so high that you’re much worse off being hit with excess mileage charges than going for a higher-mileage contract. Therefore, it is important to think about how many miles you’re likely to cover over the length of the contract, before getting quotes.

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Read on to find out how to work out which mileage allowance to go for and just how much you could be charged for going over this.

Meanwhile, if you know you want to own your car outright and don’t want to worry about excess mileage charges, take a look at the Parkers finance calculator to see how much you can afford to borrow.

Work out your annual mileage limit

It's a big ask to work out your annual mileage, but it's the most sensible way of picking your mileage limit. If your current car is more than three-years old, take a look at the current MOT and the previous one. Assuming you owned it between these periods, it will tell you how many miles you covered in a year.

If your car is too new for an MoT, start with fixed journeys. If you commute is 20 miles each way, five days a week, that alone will account for around 10,400 miles per year.

Consider any other long journeys you’re likely to make too, like family jaunts to the continent on holiday. Add all of these together and you’ve got a base for your annual mileage. Consider how many other journeys you typically cover, how long these are and how often you make them and add this additional mileage in.

Since excess mileage charges are higher than the premium for choosing a higher-mileage contract, it’s wise to add several thousand extra miles to the total. And then you’re ready to go.

How much will excess mileage charges cost me?

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Typical excess mileage charges hover below the 10p per mile mark.

It makes sense then, to double check the figure before setting your mileage allowance – the larger the excess charges, the wiser it is to go for a higher-mileage contract – so you’re less likely to have to pay it.

Below is a representative deal on a Jaguar XE.

If you were to cover 45,000 miles on a 30,000-mile contract you’d be hit with a whopping £4,200 charge. Even when you consider the larger monthly payments to get a higher-mileage allowance in the first place you’d still be £3,019 better off.

Jaguar XE (45,000 miles covered on 30,000-mile contract)

  • Monthly payments: £418 (35 monthly payments)
  • Mileage allowance: 30,000 miles
  • Total paid to finance car: £19,618
  • Excess mileage charge: £4,200
  • Total paid to finance car with excess mileage charge: £23,818

Jaguar XE (45,000 miles covered on 45,000-mile contract)

  • Monthly payments: £451 (35 monthly payments)
  • Mileage allowance: 45,000 miles
  • Total paid to finance car: £20,799
  • Saving compared with paying excess mileage charges: £3,019

Is VAT included in excess mileage fees?

This depends on the manufacturer. Most brands display figures including VAT, though others show the charge before VAT, marked with asterisks, with the actual excess figure you'll have to pay hidden in the small print. If that’s the case, you’ll need to add 20% to the quoted figure to show what you’ll be charged if you go over the mileage allowance.

As not all manufacturers are transparent about excess charges, it’s worth asking the dealer to clarify in black and white exactly what the fees are. Some brands issue a higher charge if you go way over the allowance, too, so be sure to read the terms and conditions on your quote.

Can I renegotiate my mileage allowance in the middle of a PCP contract?

If you know you’re likely to end up going significantly over your agreed mileage cap, it’s worth contacting the finance company or dealer well before the end of the contract to renegotiate.

Rather than be hit with one big charge when the contract ends – provided you plan to hand the car back, that is – this is likely to bump up your monthly payments a little, but save you money overall.

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