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Van ownership options: Contract hire, finance lease and hire purchase

The world of van buying has changed a remarkable amount over the last few years. It may not necessarily be easier to get yourself a contract that works for you, but one thing’s for sure: the customer has more options than ever to get the van they need, depending on circumstances.

However, the main concern that the British workforce needs to contend with is its long-term strategy when buying vans. Is it a means to an end, a long-term investment, or is it a case of keeping financial options open for a little while? Well, there’s a payment option for nearly everyone, but choose carefully.

Here, we take you through the “big three” ownership approaches: contract hire, finance lease, and hire purchase.

Contract hire

Positives: 

  • Lower admin fees;
  • Access to a replacement van if yours breaks down (optional extra);
  • No vehicle disposal problems once your term is up.

Drawbacks: 

  • No option to buy and own the vehicle;
  • Terminating a contract early can prove very costly;
  • Depending on your contract, excessive mileage can result in an additional surcharge;
  • Any damage not seen as “fair wear and tear” could result in further penalties after the lease ends.

Finance lease

Positives: 

  • Low initial cost and the option of a fixed interest rate;
  • No damage recharge as you are responsible for disposal of the vehicle;
  • Low admin fees;
  • Accurate monthly budgeting;
  • Optional replacement vehicle if there’s an accident or breakdown.

Drawbacks: 

  • You never own the vehicle – it’ll be sold to someone else as the end of the contract;
  • Interest rates aren’t always the best, and vary for people in different circumstances;
  • You need to be on fully comprehensive insurance;
  • There are some operating risks associated with the vehicle.

Finance lease occupies a nice halfway point between the benefits of full-blown ownership, and the VAT positives of contract hire. With finance lease, you pay a deposit and fixed monthly payments, but you have the option to pick lower monthly payments and a large (“balloon”) payment at the end of the lease – usually paid for by the later sale of the van. Alternatively, you can pay more each month and receive as much as 95% of the van’s price once it’s sold.

It’s all about keeping the van in good nick, though. The worse condition it’s in, the less it sells for, and the more it’ll cost you. 

 

Hire purchase

Positives: 

  • As straightforward finance deal as you can get;
  • Does not incur taxes associated with partial lease rental;
  • You can get capital allowances from the day you get it.

Drawbacks: 

  • It’ll be listed on your books, and could affect other lines of credit you may need;
  • You don’t know how much your vehicle will be worth after you’ve paid for it;
  • All VAT needs to be paid upfront.
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