Taking out finance for new vehicles is becoming more common. Many people find that it lets them get something a little better than they’d have been able to afford otherwise. It also spreads the cost to make it more manageable.
But is buying a van on finance right for you? If so, which of the many van finance options would be best? Let’s take a look.
What van finance options are available?
There are different van finance deals available depending on whether you’re planning on buying or hiring your van.
Buying a van
Hire purchase (HP): you put down a deposit and make monthly payments over a set period of time. Once you make the final payment, the van belongs to you.
Personal contract purchase (PCP): you make monthly payments, which mostly cover the van’s depreciation. At the end of the agreement, you give the van back or make a larger, final payment to own it outright.
Balloon hire purchase
Hiring a van
Personal contract hire (PCH): also known as van leasing. Here you make monthly payments for an agreed period and give the van back to the lender at the end.
Business contract hire
Van hire purchase
- You own the van at the end of the term and the payments are fixed each month, making it easy to budget. You can usually agree to the term based on what you prefer and what you can afford to pay each month. There’s no annual mileage limit.
- Monthly payments can be high compared to other types of finance but you can reduce them by paying more as a deposit upfront.
Van personal contract purchase (PCP)
- The monthly payments are lower than you might pay with hire purchase, although you still have to pay a deposit.
- You can choose whether to buy the van at the end or return it if there’s no damage and you’re within the mileage limit. You might also be able to exchange it for another van, using any equity you’ve built up by making payments.
- You have to make a large payment at the end to own the van. There’s a limit on the number of miles you can drive it.
Lease purchase (conditional sale)
- You set monthly payments for the term of the agreement. Once this has finished you own the van.
- You can often trade in an older vehicle, or pay in cash for the deposit to set up the agreement.
- No mileage restrictions.
- You’re only able to own the vehicle if you’ve made all the necessary payments during the agreement.
- By taking out a personal loan you will have the money to buy the van outright from the start.
- You need to keep up the monthly payments on the personal loan and repay this.
- Some of the best rates are only for those with good credit scores.
Balloon hire purchase
- You pay a set amount until you own the van, after making an initial deposit and a final ‘balloon’ payment.
- It’s often cheaper than hire purchase because you’re making the additional payment at the end of the agreement.
- Monthly payments may be high but you can reduce the amount by increasing the initial deposit or balloon payment.
Business contract hire
- You never own the van, which is used for commercial driving, and this may be a cheaper option for businesses.
- There are often extras thrown in such as breakdown cover.
- You never own the van and there may be restrictions on mileage.
Van personal contract hire (PCH)
- You rent the van rather than buying it, which could be more cost effective for your business. You can replace your van with a new one every year or 2, so it always looks good for your customers.
- The maintenance of the van and breakdown cover may be included in the deal and there’s flexibility on deal lengths and mileage limits.
- You never own the van. And there’s a mileage limit too.
Find out more about buying versus leasing a van before deciding which is right for you.
- Business customers often use this and it can be flexible, after paying an initial amount for renting the van, you pay set monthly fees.
- You aren’t normally restricted by mileage.
- You can extend the lease at the end of the agreement, or sell the vehicle and get a percentage of the money.
- You never own the van, and it can be more expensive than buying options.
What’s needed for van finance?
To apply for van finance you need to supply the lender with certain information and documents. This is likely to include:
Your full name and date of birth
Your marital and residency status
Your current address with documents to prove it, such as a recent utility bill
Any other addresses you’ve lived at over the past 3 years
Proof of identity, such as your passport
A valid driving licence
Proof of income, such as 3 months’ bank statement
Your bank details
If you’re self-employed it should be enough to provide bank statements showing a regular income.
It’s harder to get a van on finance if you can’t provide proof of income, and you may need to pay a bigger deposit. You can also add a guarantor, such as a family member, to your application who can guarantee to make the payments if you can’t.
Alternatively, you may be able to apply jointly with someone who can prove their income.
You also need to have an excellent credit score.
What’s the best way to finance a van?
Each finance option has its pros and cons so the best one for you will depend on your needs, budget and circumstances.
If you want to own the van outright, a HP or PCP deal or using a personal loan might be the best option. Remember that you need to make a larger payment at the end of a PCP agreement to keep the van.
PCP and PCH deals tend to have lower monthly payments than HP agreements. So, if keeping your payments low is what you’re after, these might be worth considering. You don’t have the option to own the van with PCH though. If you’re happy leasing the van, a finance lease or business contract hire could be your best options.
How can I make buying a van on finance more affordable?
Here are some tips that might come in handy:
Consider downsizing the van
Work out what you need the van for and make sure you get something suitable. Do you need a 3.5-tonne van if you’re a florist who only carts around a few small pieces of equipment?
Improve your credit rating
Your credit history could impact the availability of finance deals and the interest rates you’re offered. Keep your credit rating in good shape to give yourself the best chance of getting a good deal.
It’s a skill that many are reluctant to try out. But you’d be surprised at how much you could reduce the price, just by asking.
Pay off the agreement early
This could save you money depending on the terms of your deal and whether there are any early repayment fees to pay. This may involve returning the van early.
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