VANWORLD’S GUIDE TO FUNDING YOUR VAN
So, you’re considering a brand new van. There are lots of different makes and models to choose from, but when you’ve narrowed down your search and pinpointed the ideal vehicle, there are a couple of big decisions still to make: Cash or finance? Buy or lease?
To help make deciding a little easier, we’ve created a handy Guide to Funding your Van. This guide covers all the main options, detailing the pros and cons of each route, enabling you to identify what’s best for you and your business.
Paying cash and buying your van outright seems like the most straightforward option. After all, you simply decide which van you want, hand over the money and drive away happy.
Buying. The positives…
On the plus side, you’ll own the van outright. For some businesses, this can be a real benefit as ownership means you’re free to use the van in any way you like. There are no restrictions to the number of miles you drive either. Plus, it’s an asset that sits on your balance sheet and can be liquidated at any time.
Buying. The not so positives…
The downsides of buying your van outright are also linked to ownership. The servicing and maintenance costs are both entirely your responsibility. You’ll also find that depreciation impacts on the value of your asset. And the resale value will be influenced quite heavily by how well you look after the van, and the number of miles you drive. This could result in you only receiving a fraction of what you paid when it comes time to sell the van.
When all these elements are factored into your decision, it could be that paying cash is actually more expensive than you’d originally realised.
As an alternative, you might prefer to keep your money in the bank and consider one of the popular finance options instead.
Whereas buying outright involves handing over a large lump sum immediately, financing your purchase helps budget the expense and spread the cost over a number of years.
Paying for your van via affordable monthly instalments protects your capital, enabling you to invest your hard-earned money elsewhere - perhaps on vital tools and equipment, or even additional staff - while still driving the ideal van.
Hire Purchase. The positives…
Traditional Hire Purchase finance deals provide the convenience of these affordable monthly payments, combined with guaranteed ownership of your van at the end of the agreement. You’re then free to continue using the van for as long as you like. Or you can sell it at any time and pocket the cash.
For those who ultimately want to own their vehicle outright, but don’t want the expense of parting with a large chunk of capital in one go, Hire Purchase can be the perfect option.
Hire Purchase. The not so positives…
Hire Purchase is probably the most expensive finance option in terms of monthly costs. Remember, you’re spreading the entire cost of the van, plus interest, across the length of your contract. You can balance this across a longer contract and although it will help to reduce your monthly repayments, you’ll pay more interest in the long-term.
If ownership isn’t your main priority, then the more popular Business Contract Purchase deals could be more attractive. These deals do provide ownership at the end of the contract, but this can involve paying a large final (balloon) payment.
Business Contract Purchase. The positives….
Often described as a hybrid of buying and leasing, the undoubted benefit of a Business Contract Purchase deal is that the monthly payments are lower and more affordable than with Hire Purchase. That’s made possible by the final ‘balloon’ payment. How it works is quite simple.
Firstly, you specify how many miles you’ll drive during the contract. The dealer then uses this figure to help work out what the van will be worth when the contract ends. This figure is subtracted from the asking price and what’s left (minus any deposit you’ve paid) is the amount you finance.
So, if a van is for sale at £10,000 and the final ‘balloon’ payment is £5,000, you only finance the remaining £5,000, plus any interest charges – spread over 2-3 years.
Business Contract Purchase. The not so positives….
The downside is that unlike a Hire Purchase contract, you won’t automatically own the van when all your payments have been made. If you want to take possession of the van at the end of your agreement, you’ll still need to make a significant and additional one-off payment.
A third option is the convenience of leasing. There’s no option at all to own the vehicle with a leasing deal. Instead, you’re simply paying to use the van for an agreed period of time – usually between 2-5 years.
Leasing. The positives…
The great advantage is that you don’t pay as much to lease the van as you would to buy it – so it’s an affordable way to get behind the wheel of a brand new vehicle. What’s more, you can include service and maintenance packages too, wrapping the expense of things like repairs and new tyres into your monthly repayments. So it really is hassle-free driving.
Leasing. The not so positives…
The most obvious disadvantage is you’ll never own the vehicle. There are often agreed annual mileage stipulations too, plus additional fees to pay if you exceed these. And you’re tied to using the van you lease for as long as your contracted lease period.