Tim Rosser: over contract mileage dilemma
I’m over my contract mileage, what should I do? That’s the question from Tim Rosser, the managing director of Turning Circle Solutions, a company that turns around and then develops ailing businesses.
I drive an Audi A3 TDi. It is on a contract hire agreement arranged through a contract hire leasing broker.
The contract hire agreement is over a three-year period and is capped at 45,000 miles.
However, 18 months into the contract, I’m driving more miles than I had anticipated.
It will cost me an extra £100 per month to take the agreement to 60,000 miles. Is this worth doing now?
Or should I just pay the mileage penalty at the end of three years: 09p per mile over the contracted mileage?
Dean Woodward: contract mileage advice
We asked leasing expert Dean Woodward from Daimler Fleet Management for the advice he would give to Tim for being over contract mileage.
The immediate answer to Tim’s issue is a simple financial one. The contract revision of £100 per month totals £1800 over the term.
The excess mileage penalty equates to £1350 – so there is an immediate financial benefit by opting for the excess.
However, Tim should consider these other points before coming to any final decision.
If he goes for a:
- contract revision then the known fixed cost of £100 pm allows cash flow forecasting. Also, there is the possibility of exceeding 60,000 miles and incurring further excess mileage at 9ppm – in which case the bulk of the over-mileage penalty has been paid for. Again it allows better cash flow for Tim.
If Tim goes for the:
- excess mileage penalty he should ensure that the pence per mile is at the single rate and doesn’t increase at a second rate after another excess threshold is reached: for example, 09p per mile for the first 5000 miles; 15p per mile thereafter. This could substantially impact on any decision to go for the excess mileage option
Tim should also consider if the unexpected increase in mileage may cool off over the next 18 months to negate the initial fluctuation.
Finally, Tim should make financial provisions to accept and absorb the expected excess mileage charge at the end of the contract hire agreement.
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