How to get finance for a van
Keeping things moving with a reliable van is crucial for many businesses, but what if you don’t have the cash? Van finance could help
If you’re looking for finance on a new van, getting good value for money is likely to be pretty important to you. Just like if your vehicle is off the road, you’re wasting your business’s money, the same is true with new van finance - get it wrong and you’re going to be eating into your profits.
And when it comes to vans, there’s a lot to be said for paying to run a brand new one. It’ll last you longer without needing costly maintenance work for a start, plus it will reflect well on your business if clients and customers see you and/or your employees driving around in a clean, smart, modern van.
True, a brand new commercial vehicle will lose value more steeply than a second-hand one, but depending on the type of finance you opt for, that issue can be minimised. What’s more, if you go for a Personal Contract Purchase (PCP) deal, you can precisely predict the total cost of purchasing the vehicle compared with buying a van and then selling it - as you don't know how much you'll be able to sell it for in a few years' time.
New van finance with Personal Contract Purchase (PCP)
When you finance a van with PCP, the deposit and monthly payments only cover part of the vehicle’s value - essentially the amount it is expected to drop in value over the course of your contract - normally with a little interest added. As a result, the monthly payments for van PCP deals are much lower than with an equivalent loan or Hire Purchase deal, where the deposit and monthly payments cover the whole value of the vehicle.
A van PCP deal is also a usefully flexible form of finance, as you can either choose to buy the van at the end of the contract, or hand it back. If you choose to keep it, you’ll have to stump up for the large optional final payment - also known as the balloon payment. If you do want to keep the van but don't have the cash available, you can refinance the balloon payment.
The alternative at the end of a PCP contract is to hand the vehicle back to the lender. If you do this, you can simply walk away, with nothing more to pay - provided you have stayed within the pre-agreed mileage limit and haven't caused any damage to the vehicle beyond fair wear and tear.
What’s more, if the van is worth more than the optional final payment, this is known as having equity in the vehicle. If you hand the van back at the end of the agreement and take out another finance deal, you can put this equity towards the deposit on a new replacement van.
New van finance with Lease Purchase (LP)
In many ways, a Lease Purchase deal is similar to a PCP finance agreement. The deposit and monthly payments still effectively cover the amount of value the van is predicted to lose over the course of the contract - rather than the vehicle's full value, so monthly payments are relatively low. The difference is that the large payment at the end is compulsory rather than an option - so you will definitely end up owning the van at the end of the contract if you get to this stage.
What many van drivers do at the end of the lease period, however, is part-exchange the van for a new one, and any value in the van above the balloon payment can be put towards the deposit on the new vehicle. The greater the amount of equity, the more it will reduce monthly payments on your next van.
You also know from the start exactly how much the large final payment will be at the end of the contract. Combined with the fixed monthly payments, this stability should help you with budgeting elsewhere in your business and to ensure that you have enough to pay this amount when the time comes.
New van finance with a Hire Purchase (HP) deal
Unlike with a PCP or an LP agreement, if you pay for your van with Hire Purchase, your deposit and monthly payments will cover the whole value of the van. This means that your monthly payments will be higher compared with PCP or LP but, once you’ve made all the monthly payments, the van is yours with no large final payment to make.
Once you’ve completed the payments, the van is yours to do with as you wish - you could keep running it for years to come, or you could trade it in for a newer model. There are also no mileage limits, and no penalty charges relating to the condition of the van.
One downside of a Hire Purchase deal, however, is that you can’t control the value of the van, should you choose to sell it once you’ve paid off the balance. With both PCP you don't need to worry about the final value of the vehicle changing, as what you need to pay is set from the start of the contract.
This is because the lender sets the optional final payment when the contract begins. You can choose to make that payment with PCP, or if the value of similar vans has dropped dramatically, you can hand it back and buy a similar one for less. With Hire Purchase, you’re more exposed to the unpredictable nature of used van values, as you own the vehicle at the end. If you choose to sell it at the end of the contract, therefore, it could be worth less - or potentially more - than you expected when the contract began.
*Representative PCP finance - Ford Fiesta:
48 monthly payments of £192
Deposit: £0
Mileage limit: 8,000 per year
Optional final payment to buy car: £2,923
Total amount payable to buy car: £11,926
Total cost of credit: £2,426
Amount borrowed: £9,500
APR: 9.9%
BuyaCar is a credit broker, not a lender. Our rates start from 6.9% APR. The rate you are offered will depend on your individual circumstances.