Van leasing explained: how it works, costs, pros and cons
Leasing a van is a great option for businesses that need a vehicle and want to keep their costs in check. Here’s how to do it…
If yours is one of the many businesses that relies on its vans, pick-up trucks or other commercial vehicles, there’s no alternative to running them, and then replacing them when the time comes. There are, however, lots of different ways to buy a new van. Van leasing, often referred to as Business Contract Hire, is one of these options and it’s becoming increasingly popular with businesses small and large because of the low costs and flexibility it brings.
Leasing a van is, in essence, renting it but over a longer period. You pay a monthly fee and at the end of the contract you give back the van to the leasing provider. There might be an initial rental payment at the start of the leasing deal but it’s usually small compared with the deposits required on other kinds of van finance deals. There’s also no final payment at the end because leasing doesn’t give you the option of owning the van, you just return it.
Van leasing pros and cons
As with all van finance options, leasing has its pros and cons. In its favour is the fact that you can get your business up and running with a new or used van for very little financial outlay. As we’ve said, the initial payments are small with no large deposits to find and the monthly payments are less than with other kinds of van finance. That’s because you aren’t paying off the whole cost of the vehicle with the aim of owning it at the end, you’re just renting it, usually for one to five years.
The fixed monthly costs of a van lease deal allow businesses to manage their finances more easily. You know exactly what you’ll be paying for the duration of the deal. Most lease vans are brand new, too, so there are no MoT costs to worry about for the first three years, any road tax will be included and you’ll get the full manufacturer’s warranty. Then, when the deal comes to an end, you aren’t left with a depreciating asset on the books. You can simply take out a new lease on a new van.
There’s a lot of flexibility available with van lease deals. You can set the duration and the mileage limits on the agreement according to the needs of your business. For even more predictable costs, extras such as maintenance, servicing and replacement tyres can even be factored into the deal.
Of course, leasing isn’t for everyone. When you sign the leasing agreement you are committed to it, and terminating the contract early can be expensive. Also, the mileage limits you set will have a big impact on the monthly cost of the deal, but if you exceed the agreed mileage you will be charged. The mileage limits are flexible and made clear before you sign the lease agreement so make sure you’re happy with them.
Another significant issue is wear and tear. If the vehicle sustains damage beyond what is deemed ‘fair wear and tear’ there could be additional charges to pay at the end of the deal. Many commercial vehicles lead a hard life and in certain use cases it can be easy to incur extra charges related to its condition.
Van leasing pros and cons
Low upfront costs
Can be expensive to exit the deal
Low monthly payments
Charges for exceeding mileage limit
Flexibility on contract length and mileage
Potential charges if van is returned in poor condition
Maintenance costs can be included
Simply return the van when the deal is over
Get a new van every few years
How much will it cost to lease a van?
The cost of leasing a van varies according to a number of factors, the big one being the cost of the vehicle itself. Leasing providers will also take into account their interest rates, and the predicted residual value of the van after the agreement is ended to arrive at a monthly cost to lease the van for a set number of years.
With this in mind, there are various ways that operators can lower the cost of their monthly lease payments. Agreeing to a lower mileage limit to protect the residual value of the van is one, but remember that there are charges if you exceed those limits. Another way is to pay a larger initial rental on the deal, giving the lender more of the money for the van up front to keep the subsequent monthly payments down.
Finally, there’s your choice of van. Choose a cheaper vehicle or one with better residual values and the leasing deals on offer should be more affordable.
Who can lease a van?
To take out a van leasing deal as an individual you’ll need a full driving licence valid in the UK and you’ll need to complete a credit application to check your credit rating. Those with bad credit scores may not be accepted for a van leasing deal but there are providers who specialise in sub-prime finance who may be able to help.
As a business owner leasing a van also needs to supply details of the company to prove that it is financially able to make the payments required.
What maintenance costs can be included?
If part of the attraction of leasing a van for you or your business is the predictable costs, adding maintenance costs to your leasing deal can make your future outlay even more certain. It’s very important that you read and understand the small print of your leasing contract here because different providers will include different things in different deals.
In most cases a van leasing deal with a built-in maintenance package will include any mechanical or electrical repairs needed including parts and labour costs, MoT tests for vans over three years of age that need them, tyre replacement or repairs, road tax and breakdown cover. If all goes to plan, the only significant extras you’ll have to pay above the monthly lease payment are insurance (which has to be fully comprehensive cover) and fuel.
Other van finance options
Traditional van leasing deals for businesses are often referred to as Business Contract Hire but there are other ways of financing a van available to companies. A Business Lease Purchase agreement is similar to leasing but there is the option to own the vehicle at the end by making a final payment, and maintenance costs will not be included.
A Business Contract Purchase deal is similar to the Personal Contract Purchase (PCP) deals that individual motorists take out on cars. It’s for VAT-registered companies and it involves paying an initial deposit and a series of monthly payments. Then, at the end of the deal, there’s the option to pay the final ‘balloon’ payment and take ownership of the van.
Now read our list of the best van leasing deals...