A Guide To Van Finance Options
What you should consider before choosing a finance option.
Understanding all the options for financing your van or fleet of vans can be a bit tricky, especially if it's the first time you've ever taken out a business finance agreement.
This handy guide is to help you navigate what's what, so you can make an informed choice that meets your business needs. Ready to get started?
Business Contract Hire
What is Business Contract Hire?
Business Contract Hire (BCH) allows you to add a vehicle into your fleet through hire, rather than buying it outright. If convenience is your main priority here, then Contract Hire is definitely worth considering.
Business Contract Hire is also known as Business Leasing. Business Contract Hire arrangements are not only tax efficient, they're also one of the most cost-effective and simplest ways to add vehicles to your fleet without having a significant impact on finances. BCH is flexible too: annual mileage requirements, servicing and maintenance options can all be adapted and included within your fixed monthly payments.
Once you've selected your vehicle, you agree a monthly rental to pay over a set period, typically between 24 and 60 months, with a flexible initial payment of either one, three, six, nine or twelve months to be paid after delivery. The vehicle is then returned at the end of the term.
The Benefits of Business Contract Hire
- Flexible agreement that can be tailored to suit your requirements.
- Limited capital investment is required, freeing up cash for other business investment.
- BCH can work out cheaper than actually purchasing a brand-new vehicle - you're just covering the cost of depreciation of the vehicle over the term of your contract.
- Avoid the risk of losing money through vehicle depreciation and possible negative equity.
- 100% of the VAT on the finance and servicing costs can be reclaimed, if the vehicle is only used commercially.
- If the vehicle has some degree of personal use, it will still be possible to reclaim 50% of the VAT.
- Maintenance, servicing and MOT costs can all be included as part of the agreement.
- Nothing further to pay at the end of your agreement, nor any hassle selling the vehicle. You just hand the vehicle back.
Things To Consider
- Depending on the remaining contract term and mileage used, ending the contract early can be costly.
- The vehicle must be kept in a well-maintained condition, commensurate to age - any damage over and above that stated in the BVRLA 'Fair Wear and Tear' guide will incur charges.
- No custom modifications can be made of any kind without prior approval.
- Signwriting must be removable and not cause any damage to the vehicle.
- If the agreed mileage is exceeded, you'll be charged an excess mileage penalty for each mile over your agreed allowance.
- You'll never own the vehicle outright, as there is no option to purchase it when the contract ends.
Business Hire Purchase
What is a Business Hire Purchase (BHP)?
Business Hire Purchase is our most popular finance option; it's the simplest way for businesses to acquire a vehicle they want to take ownership of once the value has been fully repaid.
It's a super easy option to follow too; you pay a deposit followed by monthly payments.
A deposit payment is agreed - typically around 10% of the vehicle's value but you can pay more - and repayments will be calculated based on the remaining value of the vehicle which you are financing, and the length of the repayment term. The interest rate and monthly payments are fixed for the duration of the agreement and when the last payment is made, the vehicle is all yours.
In some cases, the BHP contract allows a proportion of the cost to be deferred to the end of the term, before a final balloon payment is made.
Benefits of a Business Hire Purchase
- You can become the owner of the vehicle at the end of the agreement.
- There's less risk for the lender because they don't own the vehicle, so some very attractive interest rates can be offered.
- If a larger deposit is put down, then the interest rate can be further lowered.
- The credit rating of the hirer is not necessarily barrier to finance acceptance.
- As the vehicle will become yours, there's no excess mileage charges and you don't have to repair damage if you don't want.
- Hire purchase can be very tax efficient, as vehicles acquired through hire purchase agreements are classified as fixed assets. This allows a percentage of the purchase price (depending on the CO2 emissions) to be written down each year.
- VAT paid on vans will usually be required upfront as a deposit but can be reclaimed in full during the tax return process.
Other Things To Consider
- The loan is secured against the vehicle; the vehicle will be repossessed if payments are not kept up.
- If you miss payments, this can negatively affect your business credit history.
- You are not the legal owner of the vehicle until the agreement is paid in full.
- Repayments will include interest, meaning the vehicle costs more overall than a cash purchase.
- The rate of interest you pay will reflect the level of risk to the lender. Previous poor credit will represent higher risk and a higher rate may be charged as a result.
Business Finance Lease
What is a Business Finance Lease (BFL)?
If you'd like instant access to a vehicle at an affordable monthly cost, a Business Finance Lease is the way forward.
Essentially, your business can rent a vehicle for an agreed period. You'll never have full ownership, but you will have exclusive use of the vehicle. With a BFL, your payments are determined by the length of your contract, initial rental, mileage and the total value of the vehicle.
Once you've completed your contract term, you'll need to sell the vehicle to cover a balloon payment. The balloon payment is calculated using the vehicle's age at the end of your term, along with your projected mileage. If you sell the van for more than the balloon payment, you retain the equity minus a fee to the leasing company. If you sell for less, then you would have to cover the difference. You also have the option of retaining the vehicle and financing the balloon payment.
Benefits of a Business Finance Lease
- You can choose your contract terms, from a minimum of 24 months to a maximum of 60 months.
- It makes cash flow management simple, with fixed monthly costs.
- 100% of the VAT on the finance and servicing costs can be reclaimed, if the vehicle is only used commercially.
- If the vehicle has some degree of personal use, it will still be possible to reclaim 50% of the VAT.
- Costs will also be offset against income rather than being a capital expenditure.
Other Things To Consider
- The vehicle can be repossessed if you don't keep up payments.
- The vehicle must be kept in a well-maintained condition - any damage may impact the sale price at the end of your contract.
- No custom modifications can be made of any kind without prior approval.
- Signwriting must be removable and not cause any damage to the vehicle.
- Servicing and maintenance options are available with an additional charge.
- If you exceed the projected mileage, it could affect the value of your van when you come to sell.
Weighing up my options
As you can see, there's many ways to finance your new commercial vehicle, with each option offering certain benefits that distinguish it from others - now it's all about picking the one that fits best with you and your business.
Our finance packages can be taken over a period of 2 to 5 years. All options come with free delivery and a year's breakdown cover too.
How Vansdirect can help you
At Vansdirect, we'll aim to help you find the best course of action for you and your business.
With our range of fantastic finance options available, from leasing and contract hire to hire purchase, we offer you great flexibility. If you have any further questions regarding your finance options, please don't hesitate to get in touch.
Speak to us today - our friendly team of experts are more than happy to help.
