Mileage limit of a leased car – what happens if it is exceeded?

With financial leasing, the lessee of the car automatically becomes its owner after the end of the leasing contract, but the terms of operating leasing provide that the car is leased and a mileage limit is applied to it.

Raivo Bāle, manager of Luminor Līzings, explains what this limit is, why it is set and what to do if the limit is exceeded within the leasing agreement.

The market value of a car depends on several factors – the most important of which, along with the car’s age and technical parameters, is the mileage. If the mileage is below the average market indicator, then it increases the car’s market value, while more mileage than the average reduces this value.

“The average mileage largely depends on the purpose for which the car is used on a daily basis – for example, a family car that mostly moves around the city will have a significantly lower average mileage than a car used for economic activity that drives 100 or more kilometers every day. Before buying a car, the car seller often asks the customer for what purpose it is intended to be used and what the mileage could be during the year, because the monthly fee of operational leasing also depends on the mileage,” explains Raivo Bāle, head of Luminor Lizings.

How to predict expected mileage?

With operating leasing, a mileage limit is set, which is agreed with the customer, since the potential mileage affects the residual value of the car after the end of the lease period, and therefore the monthly payment. “The average mileage limit for a five-year leasing period is up to 800,000 km, which is an average of 16,000 km per year. Of course, when renting a car for the first time, it can be difficult to predict the annual mileage, but our experience shows that an average private person drives 20,000 kilometers a year,” says Raivo Bāle, adding that the mileage is affected by various factors, such as the distance between residence and work, a person’s pace of life and family size.

What happens if the mileage is more than allowed?

During the term of the leasing contract, it is recommended to monitor the mileage of the car in order to understand whether the plan corresponds to the real situation. “If after a year it looks like the limit will be exceeded at the end of the leasing contract, the leasing company should be informed about it. Together with the leasing specialist, the customer will be able to evaluate the current car usage habits and future plans in order to understand whether it is necessary to change the mileage limit and how it will affect the leasing payments. Mileage may vary from year to year, so there is no need to rush to increase the limit. For example, if the mileage of the car is higher than predicted in the first year, maybe it is planned to change the place of work or residence in the following years and the mileage could decrease,” says Raivo Bāle.

However, if the customer drives two or three times more than the average 20,000 km per year and knows that the car will be used the same amount in the future, it is definitely recommended to contact the lessor and review the terms of the contract so that at the end of the lease period, no penalty for the excess mileage is paid. “The operating lease agreement provides for a penalty for each kilometer exceeded – the amount of the fine may vary from different car sellers, but usually it is up to 30 cents per kilometer. So that there are no surprises and unexpected costs at the end of the contract, it is important to observe three things: carefully familiarize yourself with the terms of the contract, regularly monitor the mileage and, in case of exceeding the limit, contact the lessor in time to find a solution,” advises the Luminor specialist.