Used van finance
Vans are a crucial part of thousands of UK businesses. They're also a cost, so make your money go further with these used van finance deals
Without vans countless businesses simply wouldn't be able to function. But choose the wrong van - or the wrong finance - and it could seriously cut into your profit. That's why choosing a reliable van that is good value to finance is so important. This is equally true whether you plan to tailor your van to your precise needs and want to run it for as long as possible, or if you want the simplicity of low monthly payments and the option to trade it in at the end of the contract for a newer one.
In the past, van drivers bought the best vehicle they could afford and in many cases had to battle to keep it running as it got older and older. In the 2020s, however, it's far easier to access a newer, better condition vehicle - whether that's nearly new or used - all thanks to different types of used van finance. Keep reading for all the ins and outs of used van finance to work out which option is best for you.
Depending on your needs, a simple Hire Purchase deal might suit you; you put down a deposit, make a series of monthly payments and then at the end, the van's yours. Alternatively, if having the lowest possible monthly payment is important to you - so you can free up money to spend elsewhere in the business - Lease Purchase could be perfect. Or if the business is doing well enough to have piles of cash lying around, maybe you want to buy a van outright.
And that’s the thing; there’s no right or wrong answer to used van finance. In the end, the best deal is the one that best suits you and your business. Don't forget tax and VAT considerations as this can influence the type of financing method you choose.
Van tax: how is it affected by van finance?
There are two taxes to consider: VAT and income tax. Simply put, buy a van outright and you can set its purchase price against your income tax bill. If you’re VAT-registered and the van is VAT qualifying (that is, it wasn’t originally registered by a non-VAT buyer and its price is plus VAT) and you use it solely for the business, you can reclaim the VAT on the purchase price.
If you opt for Lease Purchase and you’re VAT registered you can reclaim the VAT on the monthly rentals. Regardless of whether you are VAT-registered or not, however, you can set the monthly rentals against tax.
There’s also something called annual investment allowance (AIA) to consider that covers machinery including vans (but not cars) and which allows businesses to reduce their tax exposure. Until December 2018, the annual allowance was £200,000 but from January 2019 it went up to £1 million.
The purchase price of a van can be included as part of a company’s AIA allowance as can the monthly payments on a lease, allowing you to spread the van’s cost over a number of allowances and freeing up what remains for other equipment.
As always regarding tax matters, seek the advice of an accountant to establish exactly what’s right for you and your business.
Used van finance: what else should I consider?
Freedom and flexibility are vital things in business and apply just as much to used van finance. The various forms of finance offer varying degrees of both, as we’ll explain later, so it's worth working out what you want before hunting down the best deal.
Meanwhile, consider how you use your van and your attitude to cash – whether you’re happy having money tied up in your van or want to free it up by financing a van, so the cash can be used elsewhere in the company.
Used van finance explained
If the idea of having no monthly payments and selling your van when you like (or should your sales demand you to) appeals, then outright purchase is the most flexible option, though this requires you to have the money upfront and be able to afford to tie it up in a van rather than investing it elsewhere. On the other hand, if you have money now but inconsistent cashflow, buying outright means you don't need to worry about future monthly payments.
Meanwhile, financing a used van using Lease Purchase and committing to a series of affordable monthly payments frees up your capital to work harder elsewhere in the business. With this format you don't need to worry about selling the van at the end of the contract; simply hand it back and every few years you can upgrade to a newer, more reliable model with lower mileage, too.
If you'd like to own the van, however, Hire Purchase offers the best of both worlds, cutting the cost of a van into a series of monthly payments and allowing you to pay for it over an extended term. At the end of this you own it outright.
Forms of used van finance
With outright purchase you simply pay the whole purchase price of the van upfront and own it from day one. You have the freedom to do with it what you want and to keep it as long as you want. This suits traditional van buyers who like the idea of paying for something outright and not having to factor monthly finance costs into their budget.
However, on that point, the money you used to buy the van might have been better invested elsewhere in the company, on tools or marketing, for example, which could have provided a greater return. On the flipside, by buying your van outright you will be spared monthly payments and if you need to raise money urgently, you can always sell it and buy a cheaper van.
If you borrow money for the van, meanwhile, be aware that you'll be reducing your borrowing capacity for other things at the same time, so it's worth considering what you can do with your cash to get the greatest return.
✔ Van is yours to use as you wish
✔ You can sell it to raise money
✔ If bought without having to borrow money, you’ll have more credit available for other business costs
✘ If bought outright, you risk depriving the business of cash that could be employed elsewhere
✘ You’re funding a depreciating asset and if you borrow the money, payments will be higher than with Lease Purchase
This works like long-term van rental where you agree to finance the van for a set period, typically from two to four years. During this period, you make monthly payments, which effectively cover the value the van loses over that time, plus a little interest on the whole amount borrowed.
Lease Purchase is set up so that you buy the vehicle at the end, although what drivers typically do is part-exchange it for a newer replacement - using any equity, that's value above the remaining debt - as a deposit on their next van. As monthly payments only cover a proportion of the van’s total cost, Lease Purchase is a good way of keeping payments down or getting a better, more expensive van than you might otherwise be able to afford.
It also takes away the uncertainty of having to worry about what the van's worth when you come to sell, because you know exactly what you'll pay over the length of the contract. This will help with budgeting elsewhere in your business. Finally, a big benefit of lease purchase is that it frees up company funds for use elsewhere in the business.
✔ It’s transparent – you know what you're paying each month and what the van will be worth at the end of the term. For this reason, it helps with budgeting and cost control
✔ As monthly payments only cover a proportion of the van’s price, it’s cost-effective and could get you the keys to a better van for your budget
✔ You can part-exchange the van for a newer model at the end of the term
✔ Frees up cash for use elsewhere in your business
✔ Contract terms can be short, meaning you could be in a newer van every couple years
✘ You have to purchase the vehicle at the end of the term, although in reality, most companies sell or part-exchange the van at the end of the contract
✘ If you cover too many miles or damage the van, it may be worth less than the finance company is demanding for it at when the contract ends
✘ If you want to own the van you have to have the funds - or take out a loan - to make the large final payment to take ownership
Unlike Lease Purchase, monthly payments with Hire Purchase cover the whole cost of the vehicle, typically over three to four years. This means that monthly payments are higher, however at the end of the term there is nothing more to pay and you automatically own the vehicle outright.
Because the loan is secured on the vehicle, payments are likely to be lower than an unsecured loan taken out to buy the vehicle, but remember, if you do not keep up payments, it could be seized.
Hire Purchase works well if the vehicle is tailored to your needs - potentially with limited value outside of your company - and you want to own it at the end of the contract. If not, then you are taking on the whole depreciation risk - meaning that if the value of the vehicle drops during the contract, you'll get less back for it when you come to sell - and it could be expensive to change up to a newer vehicle.
✔ You own the vehicle at the end of the term with no large final payment needed
✔ As a loan secured on the van, it could be cheaper than an unsecured loan
✔ Once paid off, you have no more repayments, freeing up more cash for the company
✘ You are taking on the whole depreciation risk - if the van drops in value you'll get less back if you sell
✘ Monthly payments are higher than with Lease Purchase (as they cover the whole value of the van)
✘ Due to the higher monthly payments, you might have to settle for an older or less well equipped van