In recent years, van leasing has grown in popularity with sole traders, partnerships and limited companies. It offers a cheaper alternative funding solution to buying a new van with a bank loan. Under a van lease agreement, you also don't have to worry about depreciation in value, or about selling the van. Both of these responsibilities lie with your finance provider. Read on to find out whether leasing a van could be a viable option for you, and how it could benefit your business.
In this guide:
- What is van leasing?
- What are the benefits of van leasing?
- What are the potential drawbacks of van leasing?
- What business van leasing contracts are available?
- What about personal van leasing?
What is van leasing?
Van leasing is a long-term rental agreement, that offers the exclusive use of a van or pick-up truck for a set period of time. At the beginning of a contract, the customer pays for an initial rental, which is followed by a series of monthly payments, spread over two to four years. When the contract is over, the van is given back to the finance provider without any further obligations. This leaves you as a business customer free to lease or purchase another vehicle.
What are the benefits of van leasing?
- Low initial rental means that you avoid large up-front costs.
- Fixed monthly rental costs for the whole term of the lease makes budget planning easier.
- Lease agreements are flexible in duration and mileage, so can be tailored to suit your needs.
- You can also choose to have maintenance, servicing and tyre packages included in your monthly fee.
- Road tax is included for the duration of the agreement, taking another worry off of your hands.
- You avoid having to worry about depreciation in value, as you won't be the one selling the van on.
- A full manufacturer warranty is offered as standard on all vehicles.
- You can enjoy a brand-new van every two to four years.
What are the potential drawbacks of van leasing?
- If you want to terminate the contract early, this can be very expensive
- The monthly rental cost is based on mileage. If your business operations require vans to cover considerable distances every day, then van leasing may not be cost effective.
- Excess mileage charges apply if you happen to exceed the agreed mileage allowance.
- You have to return the van in good condition, because charges will apply for any damage besides regular wear and tear.
- You must insure all vehicles with full comprehensive cover
- You can never own the vehicle, as there will never be an option to buy it outright.
What business van leasing contracts are available?
If you are a limited company, partnership, sole trader or an LLP, you may be able to apply for a business van leasing agreement. Such agreements offer many benefits, including positive tax implications, and exclusive extras like outsourced fleet administration. All business lease prices exclude VAT.
Business Contract Hire (BCH)
This is the most popular type of van leasing contract. It's suitable for sole traders, partnerships and limited companies. Under BCH, you pay to use the vehicle throughout your contract, and then return the car to the finance company when the agreement ends, with no further obligations. The monthly rental payments depend on the value of the vehicle, the length of the contract and the agreed mileage. Under a BCH agreement, you also have the option to include maintenance, servicing and tyre packages into your monthly rentals.
Business Contract Purchase (BCP)
BCP is a finance agreement for VAT registered companies and businesses. It's a good option if you want to own your own vehicles, while avoiding the risk of depreciating assets. With a BCP agreement, you purchase a vehicle by paying a series of monthly instalments. At the end of the contract, ownership passes to you after a final payment. Monthly rental costs are dependent on the value of the vehicle, the length of the contract, the agreed mileage and the guaranteed residual value.
Business Lease Purchase (BLP)
BLP is very popular with businesses that want to buy a vehicle without spending money upfront. With a BLP agreement, the vehicle is leased for fixed monthly payments, and you have the option to purchase the vehicle when the agreement ends. BLP is strictly a financial package, so it doesn't include maintenance or other added-value services that you can get under BCH agreements.
What about personal van leasing?
Personal van leasing is available to private individuals who want to take out a lease agreement on a van. This is an alternative funding solution for sole traders, partnerships and limited companies who have been trading for under a year, or who have been denied vehicle finance in the past. Under a personal lease agreement, it is the individual who is approved for finance, rather than the business. Read on to find out what types of personal van leasing contracts are on the market.
Personal Contract Hire (PCH)
PCH is a popular long-term lease agreement for individuals. You pay to use the vehicle throughout your contract, and then return the car to the finance company when the contract ends, with no further obligations. PCH is like BCH, but because it is taken out by you as an individual, you cannot recover any VAT or take advantage of tax allowances.
Personal Contract Purchase (PCP)
PCP gives you the option of purchasing the vehicle at the end of the agreement. You pay an initial rental fee, which is then followed by a series of monthly rental payments for the rest of the contract. When the agreement ends, you have the option to buy the car outright for an agreed lump sum. If you don't want to do this, then you can hand the vehicle back to your finance provider without any further obligations. The size of the monthly payments depends on several factors - the value of the vehicle, the length of the contract, the agreed mileage and the guaranteed residual value.
Personal Lease Purchase (PLP)
If you want to own a van outright but don't have enough funds to pay upfront, then PLP could be worth considering. You pay an initial deposit which is followed by a series of monthly payments, and then a 'balloon payment' at the end of the contract to own the vehicle. Because PLP is just a finance package, it doesn't include maintenance or other added-value services that you might get with PCH.