Buying a new van for your business? James Douglas, Head of Sales Operations at Volkswagen Commercial Vehicles, shares some elements to consider.
If you’re looking for a new van for your business, deciding on a smart finance solution is an essential step. Even when you’ve chosen the vehicle that suits your business best, there are then decisions to be made around financing. With so many choices available when purchasing a commercial vehicle, it can be tricky for business owners to work out which option is best.
So is buying or leasing a van better for your business? This will ultimately depend on the stage your business is at and what you need the vehicle for. The main available finance options are:
1. BUYING YOUR VEHICLE
Paying cash
This can appear to be the most straightforward and, with no interest, it may look the cheapest. However, paying the full amount up front could mean delving into long-term savings.
Personal loans
These are popular among those who prefer owning their vehicle from the outset and keeping it longer than two or three years. However, it can be expensive and, depending on whether you’ve a secured or unsecured loan, your van may be at risk if you default on payments.
Hire purchase
Involves credit secured against the van and usually requires a minimum deposit of one month’s payment and the balance is divided into a series of fixed monthly payments. There’s no mileage limit set on the vehicle and, although you’re the registered keeper, the finance company owns it until the final payment and option to purchase fee are paid.
Lease purchase
This is a great option for small businesses wanting to keep control of cash flow. It offers lower monthly payments than a hire purchase by deferring a balloon payment to the end of the agreement. Customers have a choice on the length of their agreement (usually between 12 and 49 months) with a maximum mileage of 200,000 at contract end. A key benefit is that the product can support long-term rentals and there is ownership at the end.
Personal Contract Plan (PCP)
These deals offer buyers a flexible and affordable route to purchase a new vehicle and get behind the wheel (agreements range between 18 and 49 months). Monthly repayments can be smaller and at the end of the agreement the buyer can keep the vehicle and pay off the optional final payment and option to purchase fee to own the vehicle, exchange the vehicle for a new one (subject to application and acceptance) or return it (dependent on current condition and mileage).
2. LEASING YOUR VEHICLE(S)
Opting for a contract hire or finance lease can make more financial sense in the long run if your business runs more than one van.
Contract hire
Offers greater flexibility to businesses as well as reducing any worries about the future vehicle value or the hassle of eventually selling it. Ranging from 12 to 60 months, contract hire agreements offer monthly rentals with the option to include a servicing and maintenance package. At the end of the contract you simply hand the vehicle back, subject to mileage and vehicle condition, and have the option to start a new agreement or walk away. However, customers need to bear in mind that with contract hire, you have an annual mileage agreement. If you exceed the agreed mileage, excess mileage charges will apply. While leasing a vehicle has similar benefits to contract hire, there’s no option to buy the vehicle at the end of term.
Finance lease
Is a flexible form of funding that allows firms to change the size of the deposit, length of agreement and monthly rental costs. Businesses can choose between paying off the entire cost of a vehicle via monthly rentals over the term of a lease and paying monthly rentals plus a final payment (balloon payment) based on the forecast resale value of the vehicle. Agreements usually range between 12 to 48 months and have a maximum mileage limit of 150,000 at contract end.
Volkswagen Commercial Vehicles’ Financial Services offers a comprehensive range of finance options. Every Volkswagen Van Centre has a finance expert who is on hand to guide business owners through the process and will work with you to analyse your business needs and establish the best option for you.
