Financing a new van or fleet inevitably involves major capital expenditure. But leading light commercial vehicle manufacturers now offer flexible finance products that spread the cost over a period of time, allowing plumbers and heating engineers to get the van or vans they need without overstretching their finances.

The subject of finance can be confusing. So let me explain what the major finance options are, and how these products can be adapted to meet individual circumstances.

Before deciding on the finance you want, a number of important factors should be considered. For example, how long do you expect to run the van? Can you estimate the annual mileage? Do you eventually want to own the van?

The answers to these questions could help you to decide which is the best finance product for you.

Hire Purchase
Hire purchase (HP) is the traditional form of finance agreement employed to offset a large capital outlay and it still remains popular.

With other forms of credit, such as a loan or credit card purchase, the goods you buy belong to you as soon as the transaction is completed. Under an HP agreement you pay an initial deposit followed by monthly instalments over an agreed period. Each installment is made up of a portion of the money borrowed plus interest, but you don't legally own the goods until the option to purchase fee is paid with the final payment.

Nevertheless, hire purchase still offers several attractive benefits. The initial deposit can be relatively low; the interest rate is fixed for the duration of the agreement; monthly repayments are fixed in line with the contractor’s budget; and hire purchase is generally available for both new and used vans.

Although hire purchase is still the preffered form of finance for many, other products – based on fixed-cost payments over an agreed period – are also available that offer much greater flexibility.

Contract Hire
Today many businesses are opting to hire as this eliminates the concern over vehicle depreciation and resale. Contract Hire allows businesses to operate the van/s for a monthly rental over two, three or four years and at the end of the contract, simply hand the van/s back to the van centre.

Another advantage to contract hire agreements is that service and maintenance costs can be covered in the monthly rental payments, along with the provision of a replacement vehicle if needed. With the Annual Road Fund Licence also included with many contract hire agreements, it is easy to see why this method of finance is becoming increasingly popular, particularly with companies operating large fleets.

Lease Purchase
Lease purchase is an extremely cost effective way of eventually owning a new van. The lease period can range from one to four years, during which time you make monthly payments but defer payment of a percentage of the vehicle’s cost until the end of the agreement. The monthly payments and payment period are agreed to suit budget and cash flow. Furthermore, the interest paid is allowable against income tax.

Finance Lease
A finance lease agreement sees finance company retain ownership allowing it to recover the VAT on the cost of the van/s and then pass the savings back to customers through reduced monthly payments.

After the duration of the lease period is decided – normally two, three or four years – the customer makes an initial advance payment before selecting one of two options:
• Spread the cost equally over the full term
• Pay a higher final rental to reduce the monthly rental still further

At the end of the agreement the customer can sell the van on the finance company’s behalf. A proportion of the proceeds of the sale will be refunded to the customer when all terms and conditions of the lease agreement have been met.

Additionally, with Finance Lease and Contract Hire agreements you may be able to recover up to 100 per cent of the VAT payable on the monthly rentals, if your business is VAT registered and your van is only used for company purposes*.

Contract Hire, Lease Purchase and Finance Lease agreements offer builders flexible and affordable finance solutions specifically for their needs.

Having selected the most suitable van for your business and deciding upon the best finance package for you, other products are available to allow effective budgeting for essential maintenance and finance protection in the event of adversity.

Fixed-cost maintenance
Fixed-cost maintenance plans have been developed so van users can budget for their maintenance and servicing costs. There are three different plans:
• Service only
• Service and maintenance
• Service, maintenance and tyres

Fixed-cost maintenance plans are usually available for up to 48 months or 120,000 miles, whichever limit is first reached. You can apply for the plans at any time up until the van’s first 10,000 miles and providing it is not more than one year old. Your mileage can range from 5,000 miles to 40,000 miles per annum and payment can be made in advance or by regular monthly Direct Debit.

A fixed-cost maintenance plan allows contractors to stay on top of their expenditure, control cash flow and keep their vans on the road.

GAP Insurance
Having committed a significant sum to acquiring a new van, it is wise to think about protecting your investment. Accidents and vehicle theft are distressing enough without the additional anxiety of financial hardship caused by having your van stolen or written off.

In the event of your van being written off through accidental damage, fire or theft your motor insurance company will generally offer a total-loss payment on the market value of your van at that time. This could be significantly less than what you originally paid for it or what you may still owe under a finance agreement.


However, some commercial vehicle finance specialists have introduced GAP insurance that could meet this shortfall, with two types of cover available: shortfall protection and return to invoice protection.

Shortfall cover will make up the difference between the amount your insurance company will pay and what you owe under your finance agreement, usually up to a figure of £10,000.

Return to invoice protection goes even further, as it covers the difference between what the insurance company will pay out and the actual price you paid for the van. This payment could be worth up to £15,000, allowing you to replace your van with one similar to, or the same as, the model you lost.

Depreciation in value is a fact of life for all van owners and can leave them seriously out of pocket in the event of their van being written off. But by making a single payment, contractors can have increased peace of mind knowing that the gap between the amount the insurance company pays out and what is owed under a finance agreement, or what was paid originally, can be bridged.

Payment Protection**
Many working in the industry are self-employed, so it makes financial sense for them to insure against sickness, accident and unemployment, thus safeguarding their ability to meet financial commitments. Once again there are different cover options offering payment protection against death, critical illness, accident, sickness and unemployment. No one likes to dwell on such misfortunes but in an uncertain world, safeguarding your financial position is sound business practice and should not be overlooked or treated lightly.

Light commercial vehicle manufacturers pride themselves on the complete service they offer their customers, and finance is an important part of this service. This is good news for van users, as they can now take advantage of a range of attractive finance products that offer flexibility, financial control and greater peace of mind.

* Taxation and accounting practices are subject to change and current business allowances can be changed at any time. It is recommended you seek independent tax advice prior to entering into any finance or hire agreement.

** Terms and conditions apply.