Van Finance Explained

For many businesses, a van is integral to the successful day-to-day operation of the company. Without it there is no business. If you are considering a van purchase, you will undoubtedly have a number of requirements and considerations when it comes to purchasing the right vehicle for your business. Not only will it need to be big enough to support the nature of the service you offer, it should also be economical and reliable. Then there is the budget to consider and which type of van finance is best.

There was a time when you would have worked to a fixed amount of what you could afford to outlay all at once to secure ownership of your van. You would then have to run the vehicle for as long as you could before you outgrew it, or it became too expensive to keep repairing.

In the current climate, there are so many affordable finance options that you are really spoiled for choice with many businesses able to afford to change their vehicle every few years. In fact, there are so many options, you may be confused by it all.

So, let’s break it down and give you the pros and cons of the various van finance options available to most business owners today. 

Getting A Personal Loan To Purchase A Van For Your Business 

Some people like the simplicity of having a personal loan between them and the bank which results in a simple monthly repayment. There is also the option to arrange a loan with the van dealership too. Van dealers may have preferential finance rates whereas banks may be able to offer incentives for businesses such as deferred payments. Whichever option you choose, you need to be aware that your van is at risk of repossession if you don’t keep up the repayments, so make sure you choose an affordable option.

Pros Of A Personal Loan To Finance A Company Van:

• Can choose any lender of your choice
• The van is yours at the end of the loan

Cons Of A Personal Loan To Finance A Company Van:

• You must be able to keep up the repayments on the loan
• There are no additional perks if you are buying a van yourself

Contract Hire A Van For Your Business

A Contract Hire agreement is not dissimilar to a loan in that you pay a fixed fee every month. However, you must bear in mind that you will never own the van. You simply stop paying at the end of the term and give the van back in an acceptable condition. Bear in mind, you may be required to make good any damage that is outside of the wear and tear stipulations of your contract hire agreement.

Pros Of Contract Hire For A Business Van:

• Get a new van every year, two years or so
• Payments are consistent and spread across the term of the agreement

Cons Of Contract Hire For A Business Van:

• You never own the van 
• Can require costly upfront payment 
• You many have to pay to fix dents and scratches before returning the vehicle

Lease Purchase A Van For Your Business

The main difference between Lease Purchase and Contract Hire is the option to buy at the end. A lease arrangement also means there is a large deposit upfront with another sum due at the end of the agreement should you wish to keep the van.

Pros Of Lease Purchasing A Van For Your Business:

• Low cost option
• Flexible mileage terms
• Option to buy at the end of the agreement 

Cons Of Lease Purchasing A Van For Your Business:

• Higher upfront costs at start of agreement and again at the end
• You'll have to stick with the same manufacturer
• Potential problems with mileage limits (cost incurred at the end)

Using Cash To Purchase A Van For Your Business

There are still those that like to own their vehicle outright and that prefer to pay cash upfront for everything. As with all the van finance options that we have listed above, there are pros and cons to this option. 

Pros Of Buying A Business Van With Cash:

• Outright ownership of the vehicle 
• No lengthy finance agreements 

Cons Of Buying A Business Van With Cash:

• You are solely responsible for the upkeep of the van 
• You have to bear the van in mind when declaring tax 
• You may be tied to the vehicle for longer than you would like
• The van's value will depreciate over time, while you own it

If you are considering this option, you need to consider your Annual Investment Allowance (AIA). You are required to pay tax on any profits in a tax year. If you are making an investment such as buying a van for your business, you can subtract this amount from the taxable profit.

With any of the options above, it is best to seek advice before you do anything. Talk to your accountant about the option that is best for your business and work out how much you can afford to invest in a van, whether that be an outright purchase, a lease or a Contract Hire agreement. We are happy to answer any questions you might have about Contract Hire, leasing a company van and other aspects of popular van finance.