Finance firms will expect the van to be in reasonable condition at the end of the lease period. Expect a hefty bill if damage goes beyond ‘reasonable wear and tear’ (Picture courtesy of BCA)
The firms who offer van finance have to make a profit of course, so you could possibly find yourself paying a little extra in the long run to lease rather than buy outright. But leasing saves a big admin headache for you. And don’t forget that these companies use their massive purchasing power to drive down the front-end prices of the vans they buy, so will pass on a portion of those savings to you.
So what’s the difference between contract hire and finance lease?
Contract hire
You agree a set time and mileage for the vehicle you want – say three years/60,000 miles – and pay a monthly sum over that period.
Add-ons such as maintenance can be included if necessary and the payments remain static for the length of the contract. At the end of the contract the leasing firm takes the vehicle back and sells it. If they’ve done the sums right they’ll make a profit on the re-sale value – which they get to keep.
Finance lease
Similar to contract hire but you don’t have to specify mileage – a plus point for some van operators.
The vehicle can either be paid for over a specific time or paid for to cover depreciation only, with a “balloon payment” at the end when it is sold to cover any outstanding costs. You also have the option to keep the van at the end of the contract on a secondary ‘peppercorn’ lease. The leasing company remains the legal owner of the vehicle.
Leasing benefits
You don’t have vast wads of cash tied up in company assets that are depreciating rapidly. The money you save upfront can then be invested in your business.
You know exactly how much your vans are going to cost for the length of the contract, so there will be no nasty surprises ahead.
Leasing drawbacks
You have to sign up for a particular period of time, so it’s no use handing back the vehicle halfway through its contract if you find you don’t need it any more. If you do, you’ll find yourself severely out of pocket.
Go over the agreed mileage on contract hire and the leasing firm will charge you for every extra per mile. It can work out to be quite a lot of money.
The leasing firm will expect your van to be in reasonable condition when you return it. If it isn’t then they will charge you for fixing any damage.
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