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How does mileage work with car leasing?

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To understand how mileage works with car leasing, you need to have a solid understanding of how leasing works in general. 

It’s actually pretty simple, that’s what a lot of people like about the leasing model. It keeps everything nice and easy. 

When you lease a car, the finance company buys the car at one price, estimates the price of the car after the lease period, and it leaves them with a sum - the lease cost. 

So if the car cost £10,000 to buy new, and after 3 years, it was worth £6000, then the lease cost is £4000. 

Leasing is affordable because you don’t actually pay the whole cost of the car, just the lease cost. Of course, the finance company will add their interested and profit on top, so it will look more like £4500. Then they split that evenly over the time of the lease, most commonly 36 months (or 3 years). 

So, the value of the car after it has been leased plays an important role in leasing. As with any used car sale, 2 things are important: 1) The general condition of the car, and 2) how many miles it has done. 

As it’s a brand new car when the lease starts, it’s normally looking to be sold again after 3 years. That’ means it’s still going to be in good condition. That leaves mileage. To be able to estimate more accurately the price of the car after the lease, the finance company ask each client to suggest a limit to the mileage they will do. It’s normally expressed per year because we’re used to thinking about our mileage per year. So it could be 10,000 miles a year limit, which is 30,000 miles after 3 years. This figure is fairly common but you could say 8,000 or 12,0000, or even more if you wish. 

Once you set your own mileage limit, we estimate the cost of the car for resale after the lease and that is factored into your monthly payments. So, if you say you’ll use it more, it will be slightly more expensive than if you say you’ll use it less. Should you happen to use it more than your mileage allowance then it’s likely that the car will be worth less than the finance company estimated. So, they’ll ask you for a fee that will cover the difference in the actual price and the estimated price now that the used lease car has more mileage. 

The finance company want a win-win situation. They want to give you the best deal and they want you to pay for your usage fairly. Add their profit on top, and everyone is happy. If the situation arises where you start to use your car more often, then get in touch with the leasing company. They don’t want to be bad guys. If they can, they’ll adjust your monthly payments slightly to incorporate the actual mileage and there will be no nasty surprises at the end of the lease.