First congratulations on making the first big decision: which used van to go for. But now you’ll be thinking about the next big decision: how to pay for it. You’ll have a lot of questions understandably, so here’s our guide to helping you find the right answers for your business. And remember, for accurate guidance about your own circumstances, you should always consult your accountant.
1. Cash?
This is the big question and it totally depends on your circumstances. If you can afford to buy your used van outright, then obviously you’ll be the proud new owner straightaway instead of waiting to pay it off. And you’ll save money in the long run compared to paying interest on finance over several years.
2. Or finance?
But if you have a lot of other expenses to consider and don’t want to tie up all your money in a van, then finance can help you with monthly payments that will let you spread the cost over several years.
3. What are the pros and cons of buying?
Pros
- No monthly payments to worry about
- You’ll save money in the long run
- Free to use the van how you like – and modify it
- Free to sell it/change model anytime
- You can save money on insurance over time (the upside of depreciation)
- You’ll have more credit available to cover any other business investments/costs
- Makes sense if you intend to own it longer than it would take to pay off with finance
Cons
- Money tied up in van cuts of cash that could be used elsewhere in your business
- Unpredictable running costs
- Less cash to cope with unexpected expenses
- Your money has gone into a depreciating asset – and one that you will work hard
- Depreciation also makes it harder to upgrade when it’s worth a lot less further down the road
- Maintenance costs not covered and no fixed costs
4. What are the pros and cons of finance?
Pros
- Can help you afford a better van for your budget
- Helps you spread the cost
- Frees up your money for other costs/business investments
- Save money on maintenance as often included for a fee
- Known costs help you plan finances better
- Depreciation not such a worry – depending on the type of finance you can hand the van back or buy for a pre-agreed figure
- Flexible – different packages let you simply return the van at the end or if you prefer, you can make a balloon payment at the end to own the van
Cons
- You don’t own the van
- Less freedom to modify the van
- With some you need to estimate the mileage you’ll clock up over the agreement – with penalties for going over this figure
- Often have to put a deposit down
- Penalties on some plans if the van is returned with too much wear and tear
- Costs for early termination if your circumstances change
- Need to be in a good financial position to afford repayments every month
- You can lose your van if you do run into financial troubles
5. What types of finance are there?
There are a whole range of options available with pros and cons totally depending on your requirements, your finances and whether you want to just hire the van over several years – or want to end up ultimately owning it. The most popular types of finance available include:
Contract Hire:
Monthly payments and return the van at the end of the agreement. Estimate the mileage you’ll cover over that time – but there’ll be a penalty charge if you go over that figure.
Hire Purchase:
Monthly payments – you own the van at the end of the agreement.
Personal Contract Purchase (PCP):
Generally lower monthly payments with three options at the end: Pay the balance – the Balloon Payment – and own the van, part-exchange or just simply return it. Again, you have to estimate mileage with penalties if you miscalculate.
For more detail on these finance options take a look at our Quick Finance Guide.
6. What about the total cost of finance?
Low monthly payments can look good but always stop and check the APR (Annual Percentage Rate) and what you’ll actually end up paying in total. You can then use that figure to compare with other options. And consider the length of the arrangement and the amount of interest. The longer the term the lower the monthly payments, but total cost could be higher compared to a shorter term with higher monthly payments. As always, it all comes down to your budget.
7. What about tax and VAT benefits?
You’ll find tax advantages in both purchase and finance if your van is used purely for business. Buy a van outright and you can set its purchase price against your tax bill. And with finance you can set the monthly rentals against tax. When it comes to VAT, any VAT element on the price of the van if you paid cash, or on monthly finance payments, can be reclaimed. But VAT and tax claims will all be impacted if there is any personal use of your van. For more information take a look at our Vans and Taxation Guide.
So that’s it. And one last reminder, before committing to anything, always double check with your accountant!
When you want extra guidance, feel free to talk to our specialist dealer partners. They supply thousands of vans every year and with all their experience they’ll always be happy to help.