Leasing is one of the most affordable ways into a van. Read more about lease vans here
It’s also easy to understand. It’s a long-term rental, usually offered on brand new vans. You make an initial payment, a series of fixed monthly instalments and then return the van at the end: that’s it (hopefully - excess mileage and damage charges apply if it’s not in the expected condition).
Buying vans with lease purchase
But there’s another common way of paying for vans in monthly instalments. It’s often confused with leasing because it’s called lease purchase.
Lease Purchase is a finance arrangement, which involves paying for the full cost of the van, plus interest. It’s available for new and used vans, offering low monthly payments, which don’t cover the full cost of the van. That’s because a large proportion of the cost is deferred to the end of the agreement.
How lease purchase works
Lease Purchase works in three different stages:
1) Choose a new or used van or pick-up truck and pay a deposit
2) The vehicle will then be delivered and you’ll then make fixed monthly payments until the end of the agreement
3) The final payment, often referred to as the balloon payment, is calculated to be the rough value of the vehicle at the end of the agreement.
You have to settle this by either:
- Paying the lump sum to buy the vehicle
- Refinancing the vehicle
- Trading the vehicle in. If there’s any surplus once the balloon is paid off, this can be used towards another van
- Selling the vehicle and using the proceeds to settle the balloon payment.
There’s no option to return the vehicle at the end of the contract and there is a risk that the balloon payment will be more than the value of the vehicle, so you may find yourself in negative equity, with a bill to settle even after the vehicle is sold.
Leasing a van for business
A straightforward leasing arrangement is usually easy to account for. You can reclaim the VAT that’s added on to monthly lease payments if your vehicle is used solely for business purposes. The lease payments are also tax deductible.
If you’re buying your van with lease purchase and it’s being used solely for business, then it should be possible to recover the full cost of VAT at the time it’s purchased, so this won’t be included in your monthly payments.
Company owners with lease purchase vehicles can also write down their van down each year using capital allowances, which account for the reduction in a van’s value as it gets older.
Cost of leasing a van
Increase your budget to £200 a month and your choice expands considerably to include nearly-new medium-sized vans with less than 100 miles on the clock. The Ford Transit Custom, Renault Trafic and Vauxhall Combo are among the vans available at this price. Alternatively, you can lease a brand new van, such as the Mercedes Citan for less than £200 a month.
Pick-ups like the Ssangyong Musso, Isuzu D-Max, and Ford Ranger start from £300 a month. SUV-based vans like the Toyota Land Cruiser, Dacia Duster, and Land Rover Discovery are increasingly becoming a more expensive alternative too.
Ending a van lease early
Repaying a lease purchase agreement early is possible and should reduce the amount of interest that you pay. The terms and conditions of your finance agreement should include details of this.
If you’re struggling to make repayments, or find that you don’t need the van any more, then the voluntary termination rule applies to lease purchase agreements. In this case you can return the van with its keys and have nothing more to pay, as long as you have already paid half of the total amount owed, including interest and fees. If you have a large balloon payment, then you may not get to the halfway mark until you’re close to the end.
At this point, you may be better off continuing your repayments, particularly if the van is likely to be worth more than the balloon payment, which will mean that you can trade it in and use the surplus for another vehicle.
It may be possible to return a van before the end of a lease agreement by paying a settlement fee. However, lenders have different policies and there is a risk that you’ll need to continue your monthly lease payments until the end of the deal.