16 December 2021

Van Finance Options Explained

How Does Financing a Van Work?

Buying vans on finance works much the same as purchasing a car or other vehicles through the same means. It involves three parties – the dealer, the lender, and you or your company.

When you buy a van on finance, the dealer is paid in full by the lender, on your behalf. That makes you or your company the registered owner of the van, so long as you continue to pay the loan back to the lender at the agreed rate including interest.

Van finance repayments are worked out based on the cost of the van and the interest rate. Interest rates vary from lender to lender but can also be affected by your credit score and personal circumstances.

The amount you pay will also be determined by the length of your van finance agreement. A longer repayment period will make instalments more affordable each month, as the total cost is spread across more months. However, it will also increase the amount of interest you pay overall, as the money is being borrowed over a greater period.

If you fail to make repayments, the lender may be entitled to repossess your van. On the other hand, once all repayments have been made, the van could be yours to keep or sell – although this depends on the type of van finance you choose, as explained below.

Applying for Van Finance

Which Van Finance Options Are Available?

Van finance options can be broken down into three main categories, from buying a van with conventional finance to less commitment with van lease deals.

Hire Purchase (HP)

First of all, hire purchase (HP) is one of the most traditional ways of buying vans on finance. It starts with an initial deposit that is paid upfront for the van. It’s possible to find no-deposit HP deals, though most will require around 10% – and any deposit you can make will reduce the monthly repayments going forward.

The remaining balance is then paid in instalments over an agreed period, including interest on that balance. When all payments are made, you will own the van outright, so you can choose to keep it or sell it.

Personal Contract Purchase (PCP)

Similar to HP, personal contract purchase (PCP) agreements usually require a deposit of around 10%. Again, 0% deals are available but will cost more in the long run. You’ll then pay instalments towards the cost of the van over an agreed term. However, they won’t cover the cost of the van in full.

Unlike HP, PCP includes a final (balloon) payment, which is determined by the final price of the van at the end of your term. You can choose to pay the balloon payment, so you own your van outright or give the van back to the lender.

It’s worth noting that the balloon payment is calculated based on the van’s market value without any damage it has incurred. That means you will be billed for any unrepaired damage on the van if you give it back to the lender. On the flip side, you’ll find yourself paying more than you might have thought the van was worth if you want to keep it despite its bumps and scratches. 

Personal Contract Hire (PCH)

Finally, there’s personal contract hire (PCH). Also known as van leasing, this is a long-term rental agreement where you make monthly payments to use a van as if it were your own. At no point during the term do you own the van and there’s no option to purchase it at the end of the agreement.

PCH contracts are typically one to four years in length. Like HP and PCP, they usually require a deposit, with no-deposit deals costing more throughout the agreement due to interest. 

Because the van has to be returned, this is another type of van finance where damage has to be taken into account. If your car is damaged beyond general wear and tear, you will have to pay the lender when it is returned. The specific terms of this will be outlined in the contract of your van lease deal. 

Which Van Finance Option Is Right for Me?

To decide which van finance option is best for you, it’s worth reviewing the main benefits and drawbacks of each option and how they fit your preferences or requirements.

Firstly, HP is best if you want to own your van outright at the end of the deal. Damage to the van won’t affect you financially – other than your van being less valuable should you choose to sell it. 

On the other hand, PCP generally has lower monthly repayments than HP because of the balloon payment at the end of the term. This also provides more flexibility as you can choose to keep or give back your van.

Finally, PCH has the cheapest monthly repayments of all three options, although there is no possibility of owning the van outright. It’s a great option if you prefer to drive the latest vans without much commitment or investment, as you can essentially swap your van for a newer model at the end of your term by looking for new van lease deals.

It’s worth noting that all three options are available to businesses, with PCH and PCP becoming BCH and BCP – business contract hire and business contract purchase, respectively.

Applying for van finance on laptop

What Do I Need to Finance a Van?

To secure a van finance or lease deal, you’ll need to provide some personal details including your name, date of birth and contact information. You’ll also need to submit some proof of identity, proof of income and your address history (usually for the last three years).

Crucially, this information will be used to complete a credit check to review your affordability and the risk to the lender. Customers with higher credit scores may benefit from better interest rates as they pose less of a risk to lenders.

One of the van financing requirements that may prove problematic for some buyers is proof of income. Three months of bank statements and a P60 are usually enough to prove that you have a stable income in a normal job. But if you’re self-employed, the income itself will usually vary from month to month. That’s especially problematic as so many self-employed occupations rely on a van. In this case, your credit score may prove even more vital to the outcome of your application.

Leasing a Van with Leasing Options

At Leasing Options, we aim to take the hassle out of finding the right van finance lease for your needs. Working with leading brokers, manufacturers and lenders, we’ll match you with van lease deals that suit your requirements – whether that’s based solely on affordability or if you’re looking for convenient van finance with insurance included.

Ready to get started? Check your eligibility online or contact our team to find out more about our van finance deals.

Van Finance FAQs

Should I Buy a New or Used Van?

The choice between a new and used van comes down to personal preference and affordability. With used vans costing significantly less, your deposit and monthly repayments will be lower, with less interest to boot. You can also expect less depreciation on the value of the van, for HP and PCP deals. That said, nothing beats the feeling of a new van, which is why PCH leases are so popular. You can also expect to pay less for upkeep. 

Can A New Company Get Van Finance?

New companies can get vans on finance much like a well-established enterprise, as long as they can prove affordability for the monthly repayments.

Can I Use a Personal Loan to Buy a Van?

You can use a personal loan to buy a van. However, because the loan is not secured against the van, it can be harder to get approved by a bank without a great credit score. It also means you have to buy the van outright, so you don’t have the flexibility of PCP or PCH.

Can I Claim Van Purchase Against Tax?

If you’re purchasing a van through your company, it is classed as an asset under ‘plant and machinery’. That means you can claim it as a capital allowance under the annual investment allowance (AIA). 

The full value can be deducted from your profits before tax. In terms of finance, you can claim for payments you haven’t made yet when you start using your van but cannot claim on interest payments.

Can I Get Finance on a Van?

We aim to help all customers find van finance deals, whatever their budget and credit score. You can check your eligibility online.

Should I Finance a Van?

If you want to spread the cost of a van, finance and lease deals are a great option. With PCP and PCH, you’ll also benefit from less commitment, so you’re not tied to a van that depreciates in value.

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