If you’re after a new van but want something more affordable, van finance could be worth considering.
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.
As well as cars, there are options to finance vans, and they work in much the same way.
Is it right for you? And which of the many options would be best? Let’s take a look.
What van finance options are available?
There are three basic types of finance for your 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.
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.
Van hire purchase
Pros: 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 the term based on what you prefer and what you can afford to pay each month. There’s no annual mileage limit.
Cons: 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)
Pros: the monthly payments are lower than you would 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 may also be able to exchange it for another van, using any equity you’ve built up by making payments.
Cons: you’ll 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.
Van personal contract hire (PCH)
Pros: 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 two so it always looks good for your customers.
The maintenance of the van and breakdown cover may be included in the deal and there is flexibility on deal lengths and mileage limits.
Cons: 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.
What is needed for van finance?
To apply for van finance you’ll 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 three years.
- Proof of identity, such as your passport.
- A valid driving licence.
- Proof of income, such as three months’ bank statements.
- 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. You may need to pay a bigger deposit. You can also add a guarantor, such as a family member, to your application who will 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’ll also need to have an excellent credit score.
What is 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, an HP or PCP deal might be worth looking at. 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 won’t have the option to own the van with PCH though.
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 shapeto 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.
Should I take the van finance offer from the dealer?
It’s always worth shopping around for finance deals. Don’t feel pressured by the dealer to take out your finance with them.
If you’re keen to own the van outright, it’s also worth comparing any finance package you’re offered with getting a personal loan.
You should look at the total cost of any finance option you’re considering, including any arrangement fees, before choosing a deal.