01 August 2015 by Liam Campbell, Van Editor Last Updated: 02 Sep 2015

Parkers Guide to Van Finance
  • More than 75 percent of vans bought on finance
  • Lots of different packages to choose from
  • We talk you through the main options

The whole process of buying a van is changing and, for the first time ever, more vans are now being bought on some kind of finance package than outright. In this article, we give you a guide to the different types of financial packages and deals, and help you decide which option is best for you and your business.

Finance is nothing new to the commercial vehicle industry, with forms of contract hire and hire purchase predating motor vehicles themselves. Finance offers more flexibility, and they often include service and maintenance costs, and the ‘pay monthly’ deals fits in well with modern day consumer culture.

Contract Hire

With Contract Hire, the consumer never actually owns the vehicle. The vehicle is essentially leased to the owner over a fixed period, with a fixed mileage, and the cost of the monthly effectively pays for the depreciation of the vans. Vans with low depreciation, like Mercedes-Benz and Volkswagen, are therefore much better value on contract hire.

The obvious drawback is that you will never own the van, and you will get charged for every mile you go over the agreed limit. On the plus side, it is a lot cheaper than most of the other options and servicing is often included.

Hire Purchase

Hire Purchase (HP) is one of the simplest ways to buy a car. The consumer puts down a deposit, usually 10 percent, and pays a monthly fee to the lender for between one and five years. At the end of the agreement, the consumer pays a ‘purchase option’ fee, which transfers ownership from the lender to the consumer.

It’s simple because there are fixed interest rates, so you know exactly what you have to repay each month, and there’s a relatively low deposit required. However, you don’t technically own the vehicle until the final ‘purchase option’ fee has been repaid and the lender has the right to repossess the vehicle until one third of the total amount has been paid.

PCP (Personal Contract Purchase)

Personal Contract Purchase, or PCP, is rapidly becoming one of the more popular finance options. You pay a low deposit and low monthly instalments, to cover the depreciation of the van, but at the end of the agreement, you have the option of paying for the forecasted value (called the Guaranteed Minimum Future Value - GMFV) or handing the car back to the dealer.

On the downside, you don’t own the vehicle until the GMFV is paid and manufacturers usually set a limit on the annual mileage.

Finance Lease

Finance Lease is an extremely popular option among VAT registered businesses as up to 50 percent of the VAT payments can be reclaimed. The vehicle always remains an asset of the leasing company and consists of a small (usually three months of payments) deposit and monthly payments over a fixed period.

A “balloon payment” is made at the end of the contract to pay off the finance company’s investment, and it can be determined by the amount and length of the monthly costs. The finance company then sells the vehicle, and if the sale price is higher than the balloon payment, they will have to pay you the difference and vice versa.

Bank and Manufacturer Loans

If you have a decent credit record, a bank or manufacturer loan may be the best way forward. There is a small deposit, usually 10 percent, but the monthly repayments are typically higher. The obvious advantage of finance is that the vehicle is always in your name, so you’re free to sell or trade the vehicle at any time.

It may be worth shopping around, as the interest rates on loans can vary to a large degree. Typically, the bank will offer the more competitive rates.