Early termination and how is it calculated?
It may be necessary for some clients to terminate a contracted vehicle earlier than initially agreed. This could be due to a number of different reasons, such as staff redundancy. All leasing companies expect early termination charges to be included in leasing agreements. The following factors are considered when determining termination charges:
- The bulk of the charge is based upon the difference between the 'written down' value of the vehicle and the 'market value', which decreases the further you get into the contract.
- An allowance is made between the maintenance spent and collected to date via the maintenance budget. The exact amount will be determined by the vehicle's mileage at the time of termination.
- Also taken into account in calculating the final early termination charge is the difference between actual interest cost (based on actuarial calculation) and the interest charged (included within the monthly rental).
By employing this method of settlement, leasing companies are not penalising their customers, or seeking to recover any lost profit arising from early termination. This is a fairer system than settling early termination based on a percentage of outstanding rentals.
Early Termination & Pooled Mileage
If you have more than 2 vehicles on the fleet some leasing companies will consider a 'Pooled' mileage agreement.
This means that when vehicles are terminated on a contract hire basis and they are over the contracted mileage they can be offset against contracts terminating that are under the contracted mileage.
This is normally exercised over a 3 month period and will require accurate mileage figures for all cars in the fleet at the time. The ‘maths’ of the system is all based around the excess mileage figure allocated to each vehicle as per the initial contract. Any under mileage over the given period is then ‘credited’ to the system at a rate of around 85% as either a ‘refund’ or ’offset’ against any excess mileage of any other car in the fleet.
In certain circumstances some leasing companies will consider Pooled Maintenance Contracts and Pooled Residual Values.