If you drive a commercial vehicle, you’ll know that it’s more than ‘just a van’, it’s almost part of the team, something that you rely on as much as any other member of the team, and can be the difference between making a success of a job, or wishing you’d never got out of bed that morning.
There was a time that cash was king … you’d turn up at your local commercial vehicle dealer with a handful of notes and drive away with your chosen vehicle, but things aren’t quite so simple today, and that’s a good thing, because there are a myriad of options, and things to consider when buying a new commercial.
It’s difficult to cover every single aspect of commercial vehicle finance here, but hopefully we can give you some food for thought, and that starts with the first decision; are you buying the van for commercial use, or as a private vehicle? Perhaps even a combination of both.
There is no right or wrong way to make this purchase, but there are ways that could be more favourable, either to you, or your business. Equally, some options may not work for you – if you’re unsure, take professional advice first.
Disregarding all the fancy names of the different ways to make a purchase, you essentially have two options – purchase outright, or lease. Of course, purchasing outright isn’t just a straightforward case of emptying your piggy bank, just the same as leasing isn’t as straightforward as signing on the dotted line, and there are pros and cons for each method.
To make things easy, we’re assuming you’re looking for a new van for commercial reasons.
You’ve worked hard, grafted for endless hours, and you have a little surplus cash in the bank. This is perhaps the most direct route to outright ownership. Alternatively, your bank (be that a high street branch, or even Bank of Mum and Dad) have offered you a great deal on a loan.
You own the van outright, it can be used as an asset, it doesn’t matter how many miles you clock up each month, it can be dressed in the company’s colours, and god forbid, should the worst happen, you potentially walk away without further liability (depending on insurance etc).
ANY further expense is yours, and yours alone – maintenance, repairs, wear & tear, fitting out, possible tax implications, and you’re stuck with the same van until you can afford to buy another.
Hire purchase allows you the opportunity to own your commercial vehicle, and in most situations, there are few restrictions as to what can be done with the commercial vehicle while it’s under the HP agreement, but technically, the hire purchase company still own the van until it’s fully paid. The cost of the van is spread over the agreed number of months, and there’s no further ‘balloon’ payment at the end of the contract.
Usually a low deposit, budgeting is easy, you own the van at the end of the contract, fewer restrictions on use/mileage (although that’s subject to the small print).
You’re at risk of losing the van if you miss payments, you’re responsible for all running/servicing/maintenance costs, and a possibility of being in negative equity should the worst happen – the van is stolen or written off.
There are a number of lease deals available, some require a larger upfront payment, while others may need a larger payment at the end of the contract, should you want to keep the vehicle. Depending on the type of lease, you may never own the vehicle.
Opportunity to regularly change or upgrade to newer vehicle, maintenance costs are often included in the agreement, as is servicing. Any warranty issues become the headache of the lease company, stable way to budget each month for a vehicle, often needing just to add fuel cost.
An agreed mileage limit, going over that limit could have financial implications, you may never own the vehicle (depending on lease type), you need to keep the vehicle in good condition (which can be hard when it’s used for commercial purpose).
Each method has its own benefits and drawbacks when it comes to tax – the cost of the vehicle can be used with your Annual Investment Allowance (AIA), but understanding whether to claim in one lump, or throughout the life of the vehicle depends on circumstance. In all cases, taking professional advice is advised.
We can help you decide what works best for you and your business, and our advisors are always on hand to give unbiased, professional advice. Why not get in touch today and start the ball rolling.