Truth About Unlimited Mileage
"I have been told that mileage allowance on a Finance Lease agreement is unlimited?" The answer is Yes and No.
Let me explain.
We get asked this question a lot. Unlike Contract Hire where you pay a small PPM (Pence per Mile) charge for going over the pre-agreed mileage, Finance Lease agreements there is no penalty. The real answer maybe Yes as the mileage is not part of the contract. If you opt for a Terminal or "Balloon" Finance Lease agreement then the future payment (Balloon) is based on a Estimated/forecasted mileage. So the real answer is maybe No. The simple facts are the more mileage you cover over the term the lower resale value the van will have 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. Without proper explanation, it is miss-selling and not abiding The Financial Conduct Authority - Treating Customers Fairly Policy (See ours here). They base the quotes on the lowest possible mileage which increases the "Balloon" and lowers the monthly payment, this makes the deal seem better than other quotes you have received but is the deal the best option for you? In 99 out of 100 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 £5,550 and based on an annual mileage allowance of 8K PA you actually cover 30K 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 8K PA average. When the agreement comes to an end and your vehicle has 120,000 miles on the clock and you will find that the vehicle is only worth a fraction of the "Balloon" payment. For example; ONLY £2500 leaving a shortfall (Negative Equity) of £3050 which unfortunately you will need to find.
Finance Lease is an ever increasingly popular way of buying a new van, Finance Lease if sold properly is a great way of funding for any size business, small or large (Especially small businesses)
To avoid the situation you must make sure whether dealing with a broker or Main dealer your'e asked "How many miles PA will you cover?" It is also imperative that when obtaining quotes you make sure the Terminal "Balloon" payment is based on an as accurate mileage as is possible. The monthly payment will inevitably increase but it will avoid any big surprises come the end of the agreement.