What are Excess Mileage and Excess Damage Charges and How to Avoid Them
April 9th, 2024
Your funder can charge you for exceeding your quoted mileage and damaging your vehicle beyond what is considered ‘Fair Wear & Tear’. These costs are also referred to as De-hire charges and only apply to vehicles on a Contract Hire agreement.
Read more to discover how to avoid de-hire charges and other tips for van leases.
What are Excess Mileage Charges?
When you take out a van lease, your estimated annual mileage will be considered when you are quoted a monthly price. If you exceed the quoted annual mileage you agreed when you signed the contract, you can incur excess mileage de-hire charges.
Exceeding your quoted annual mileage will cause your vehicle’s value to depreciate more than was estimated when your van lease was agreed. Therefore, your finance company will charge you for the difference between the estimated value of the vehicle at the end of the lease, and the actual value of the vehicle after it has exceeded the quoted mileage.
What are Excess Damage Charges?
Your van lease agreement will last between 2 and 5 years. The finance company knows that the vehicle will be subject to a reasonable amount of wear and tear due to normal use and as with your annual mileage this is used to work out the value of the vehicle at the end of your agreement.
Excess damage charges come into play when your vehicle is damaged beyond what is considered normal wear and tear. To ensure this is standardised across the industry, damage to your vehicle is measured against the BVRLA (British Vehicle Rental and Leasing Association) ‘Fair Wear and Tear’ guidelines.
When your vehicle is collected at the end of your Contract Hire agreement, if it has damage beyond what is set out in the BVRLA guidelines, you will be subject to de-hire charges for excess damage.
Contract Hire Agreements and De-Hire Charges
Why do De-Hire Charges only apply to Contract Hire finance deals?
Contract Hire agreements require the vehicle to be returned to the finance company at the end of the van lease. With no option for ownership, many businesses choose Contract Hire to do away with the hassle of disposal when the vehicle is no longer useful.
Vehicles on a Contract Hire agreement remain the property of the finance company throughout the agreement. Therefore, any damage or over-use will devalue their asset when it is returned to them at the end of the term. Much like a long-term rental, if the vehicle is worth less than estimated at the end of the term of use, the finance company will need to recoup those costs through de-hire charges.
Is Contract Hire the best option?
Whether or not Contract Hire is the best option for you depends on your business usage and what you would like to do at the end of your lease. There are three types of finance agreement Global Vans can arrange – each offering different benefits.
Contract Hire: Essentially a long-term rental. You will pay a fixed monthly price across the term of the agreement, with the VAT spread across the monthly payments. At the end of the agreement, your vehicle will be collected by the finance company and you can be subject to de-hire charges should you have exceeded the expected mileage/reasonable damage.
Finance Lease: You will pay a fixed monthly price, with VAT spread across the term of the lease. You won’t be subject to de-hire charges as there are flexible end of lease options. You could still be affected by depreciation if you look to sell the vehicle or trade it in for a new model. However, you won’t be charged by the finance company for excess mileage or excess damage.
Hire Purchase: You will pay a fixed monthly price, with all of the VAT paid upfront. With a Hire Purchase you are paying for the vehicle over an extended period with the sole option of ownership at the end of the agreement. Therefore, as you will own the vehicle at the end of the agreement, you cannot be subject to de-hire charges. Keep in mind that any excess mileage or damage will still devalue your vehicle.
Have more questions on de-hire charges? Not sure what type of finance agreement would best suit your business? Contact us here, or speak to one of our leasing experts on 01179625314.