Van finance: Your options

Getting 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.

A white van in a showroom  

 

Buying a van on finance

 

Hire purchase (HP)

You own the van at the end of the term and the payments are fixed each month, making it easier 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.

 

Personal contract purchase (PCP)

You make monthly payments, which mostly cover the van’s depreciation. The monthly payments are lower than you might pay with hire purchase, although you still have to pay a deposit.

At the end of the agreement, 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 and start a new PCP deal.

There’s a limit on the number of miles you can drive it.

 

Lease purchase

You set monthly payments for the term of the agreement, there are also no mileage restrictions. Once this has finished you own the van. But you're only able to own the vehicle if you've made all the necessary payments during the agreement.

You can often trade in an older vehicle, or pay in cash for the deposit to set up the agreement.

 

Personal loan

By getting a personal loan you have the money to buy the van outright from the start. But some of the best rates are only for those with good credit scores.

You need to make sure you keep up with the monthly payments on the personal loan. Otherwise your credit rating could be at risk.

 

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. You can reduce the amount of monthly payments by increasing the initial deposit or balloon payment.

 

Hiring a van on finance

 

Personal contract hire (PCH)

PCH is also known as van leasing. Here 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.

Find out more about buying versus leasing a van before deciding which is right for you. 

 

Finance lease

Business customers often use this and it can be more flexible - after paying an initial amount for renting the van, you pay set monthly fees.

You can extend the lease at the end of the agreement, or sell the vehicle and get a percentage of the money back.

You aren't normally restricted by mileage. However, it can be more expensive than some buying options.

 

Business contract hire

You never own the van, which is used for commercial driving. This means there may be restrictions on mileage but this can be a cheaper option for businesses.

There are also often extras thrown in such as breakdown cover.

 

What is mileage allowance/excess mileage in van finance?

If you're financing a van, you're likely to come across the term 'mileage allowance'. This is an agreed limit of miles the van can cover during the finance agreement.

Leasing companies impose a mileage allowance to protect the van's value. The more mileage a van covers, the more its value drops. So, if you expect to cover long distances while leasing, you're likely to have to pay more each month as you'll be handing back a less valuable van.

PCP and PCH leasing options typically have mileage allowances. But a HP lease doesn't, as you own the car at the end of the monthly payments.

 

What do I need to apply for a 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 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, 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. 

 

Can I get van finance if I'm self-employed?

You should be able to finance a van if you're self-employed. A work van might particularly be important for you to be able to run your day-to-day business.

But it may be difficult to find some lenders willing to accept your application as a self-employed worker without a regular income.

Shop around to find the best finance deals that are cost-effective. Some lenders may ask for some documentation to prove sufficient income.

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What's the best van finance option?

Each finance option has its pros and cons so the best one for you 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 worth considering. 

 

How to make van 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?

Having a small van is also likely to reduce the cost of getting van insurance.

 

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.

 

Try haggling

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. 

 

Shop around for finance deals

It’s always worth shopping around for finance deals. Don’t feel pressured by the dealer to get 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.