Truth About Unlimited Mileage
Is it true that the mileage allowance on a Finance Lease agreement is unlimited? The answer is Yes and No.
Let me explain.
Unlike Contract Hire there are no penalties for excess mileage on a Finance Lease agreement so the real answer maybe Yes as the mileage does not form part of the contract. If you opt for a Terminal or "Balloon" Finance Lease agreement then this payment is based on a forecasted mileage which the future value "Balloon" is based upon. So the real answer is maybe No. The simple truth is the more mileage you do the less the van will be worth at the end of the agreement.
Many Brokers and some dealers will sell Finance lease on an "Unlimited mileage" basis but this is very misleading and without proper explanation is miss selling. They base the quotes on the lowest possible mileage increasing the "Balloon" and lowering the monthly payments to make the deal seem better than other quotes you have received but is the deal the best for you? In most cases I would say no.
The reason why I say this is that, if you buy your new van on a four year Finance Lease agreement with a "Balloon" payment of £6,000 and based on an annual mileage allowance of 10k PA you actually cover 25K miles per year. At the time you purchased the van, the Dealer/Broker did not ask "Approximately how many miles PA will you do?" Or if they did, then they chose to ignore your answer. They have based the terminal "Balloon" payment on an 10K PA average. When the agreement comes to an end and your vehicle has 100,000 miles on the clock and you will find that the vehicle is only worth a fraction of the "Balloon" payment. For example; ONLY £3000 leaving a shortfall (Negative Equity) of £3000 which unfortunately you will need to find.
Finance Lease is an increasingly popular way of buying a new van and is a great way for any size business (Especially small businesses) to run a new van when sold properly.
To avoid the situation you must make sure you are asked "How many miles PA will you cover approximately?" It is also important that when you obtain quotes that you make sure the Terminal "Balloon" payment is based on an accurate mileage. The monthly payment will increase but it will avoid the van being in negative equity at the end of the term.