New to van leasing and curious about how does it work? Look no further, we have all the answers you need!
Our article explains how a business van lease works in the UK, and discusses the benefits of company van leasing. We’ll also explore how leasing a van for business differs from other types of vehicle finance, and why it’s becoming an increasingly popular choice. This comprehensive van leasing guide will help both new and established companies and sole traders understand and make the most of a van business lease. Let’s embark on the journey to leasing a van with confidence.
What is van leasing?
Van leasing, also known as van contract hire is one of the most convenient and affordable ways to obtain a new commercial vehicle. Van lease allows companies to get the latest commercial vans and business cars while navigating financial planning with predictable costs and less upfront money.
Van business lease is an alternative option to purchasing. Leasing is different from other forms of van finance because you are effectively renting the vehicle and you do not own it after making all of your payments. In basic terms, van leasing is a long-term van hire.
Leasing a van allows you to drive the newest models for one simple monthly payment. When your agreement comes to an end, and all payments are made, you simply return the van to the lender. Therefore, besides satisfying your need for a commercial vehicle, business van lease eliminates the worry of vehicle depreciation and the hassle of reselling. And, because you never own the van, you’re only paying for its depreciation during the lease term instead of the full purchase price. As a result, monthly payments are usually lower compared to other van finance options.
How does van leasing work?
For businesses in the UK, company van leasing agreements typically range from two to five years. Two-year contracts are considered short term van leasing, while agreements spanning four to five years are referred to as long term van lease.
During the process of leasing a van (or any other vehicle), you must provide an estimate of your annual mileage. This estimation becomes your mileage allowance for the lease term. For example, if you declare an annual mileage of 10,000 miles and have a three-year van lease hire contract, the vehicle should be returned with no more than 30,000 miles on the odometer. If you exceed that limit, you’ll have to pay the excess mileage charge.
When you get a van on lease, you’ll need to pay an initial rental, commonly called a deposit. In general, this is the amount you pay in the first month after your car or van has been delivered. You must specify how much you would like to put down as an initial rental. It will usually be equivalent to 3, 6, 9 or 12 monthly vehicle rentals. However, some customers prefer to pay a fixed amount (e.g. £3,000).
For instance, you decide to pay 6 monthly rentals as your initial rental. The monthly rental for your new vehicle is £250. In this case, your initial rental will be 6 x £250 = £1,500. You’ll pay £1,500 in month one, followed by £250 per month for the rest of the contract term.
Lease van for business in 10 steps
Leasing, whether it’s a car, van, or pickup truck is a pretty simple and straightforward process.
- Choose your vehicle: Most customers typically come with a certain vehicle model in mind. However, van leasing companies usually have a specialist team of van experts. These professionals can help you to select the right vehicle based on your company’s requirements.
- Request a quote: Specify your desired terms including lease duration, mileage, and initial rentals. At this point, you can also decide if you want a maintained agreement or a non-maintained agreement. Or, if you’re unsure, you can ask for quotations for both options so you can compare.
- Accept the van leasing deal: If you’re happy with the vehicle, leasing terms, and monthly rentals, you can accept the quote. This usually can be done online with a single click.
- Order the vehicle: To secure your vehicle, van leasing companies usually send you a customer order form. You will need to fill out and return as soon as possible.
- Apply for van finance. Following receipt of your signed customer order form, the leasing company will apply for vehicle finance on your behalf.
- Get approved: Once approved, you will receive financial documents that require your signature. If the finance is not granted, the leasing company may request additional details or supporting paperwork.
- Get your vehicle delivered: Sit back and relax, while your van leasing company arranges the delivery of your new vehicle. Make sure that you have your van insurance in place on the day of delivery.
- Pay the deposit: Once your van has been delivered, you will have to pay the agreed deposit. This is usually taken automatically from your bank account (unless agreed otherwise) about a week-two after the delivery.
- Pay your monthly rentals: Your monthly van leasing payments will be taken from your bank account via Direct Debit.
- Return the van: As your van lease comes to an end, you need to arrange the collection of the vehicle. At Commercial Vehicle Contract, we know life is busy, more so when you have a business to run. So, your account manager will keep a watch on your lease. They’ll call you about six months before your lease ends to help you choose your next lease van.
How much does it cost to lease a van?
A common question we receive from customers is ‘how much to lease a van per month’. The truth is, there isn’t a one-size-fits-all answer. The following factors determine how much it costs to get a van on lease:
- Vehicle type: It will cost significantly more to lease a curtainside van than a small van.
- Manufacturer: Citroen or Peugeot vans are cheaper to lease than Mercedes or VW vans.
- Deal terms: Long term van leasing agreements usually offer a lower monthly cost, while increased mileage tends to raise the monthly payments. Additionally, a smaller deposit contributes to higher monthly installments.
As an example, if you decide to lease a Citroen Berlingo on van contract hire in 2023, the cost will be just under £200 per month. This price assumes a lease term of 60 months, an initial deposit equivalent to 12 months, and annual mileage of no more than 5,000.
Pros and cons of leasing a van
Advantages of business van lease
- Monthly rentals are affordable and fit your budget.
- As the upfront costs are lower than purchasing a vehicle outright, you will have more cash to invest in your business or boost your personal finances.
- There are many new vehicles to choose from; the choice is yours.
- Your leasing company will handle all administration work and processes, leaving you free to focus on your main work responsibilities.
- Leasing eliminates the risk of your valuable assets depreciating.
Disadvantages of company van leasing
- You are responsible for maintaining, servicing, and ensuring the proper operation of the vehicle. However, if you choose a maintained agreement, the funder will handle all of these.
- Contractual limits can lead to extra charges, such as excess mileage and early termination charges, which are specified in the contract.
- Any damage to the vehicle that goes beyond normal wear and tear will incur a charge for you.
Business van leasing options
Here’s a brief overview of some of the van lease hire options available to you to help you decide on the best solution for your business.
Business Contract Hire (BCH)
Van contract hire is a popular van finance option for small and medium-sized businesses. It’s also one of the most straightforward as you pay a fixed monthly rental for the use of business cars or vans. You agree on a term, usually between two and five years, and how many miles the company car or van will cover during this timeframe. At the end of the agreement, you simply return the vehicle. You won’t have to worry about the vehicle’s depreciation, which is the main reason contract hire is so popular. Van Contract Hire includes road tax for the duration of the agreement. Furthermore, you can reclaim VAT on your monthly van lease payments as well as on the maintenance charges if you opted for a maintained agreement.
Finance Lease
Van Finance Lease is a strictly business product, not available to individuals.
With Finance Lease, your company can lease its business cars and vans for a fixed monthly fee. However, unlike Contract Hire, Finance Lease transfers the risk (but also potential rewards) of ownership to your company. With FL the rental payments are based on a percentage of the cost of the vehicle, with the balance offset at the end of the lease – allowing for smaller monthly payments.
At the end of your agreement, you have to sell the van to a third party (or ask the funder to sell it on your behalf for a small fee). You then use this money to pay the pre-agreed balloon payment. But what happens when you sell the van for more than the balloon payment? Well, you keep the difference! However, if you sell the vehicle for less, you have to make up the difference.
Van Finance Lease includes road tax for the first year only, however, you can reclaim VAT on your monthly rentals and vehicle maintenance cost if you have a maintained lease.
Business van purchase options
Business Contract Purchase (BCP)
BCP is a type of van finance agreement. Under this agreement, your company pays monthly installments for a set term and retains the option to purchase the vehicle. Once you pay the balloon payment agreed upon upfront at the end of the contract, you take ownership of the van. You need to keep in mind that you have to pay the whole VAT up front when you choose Business Contract Purchase.
Van Contract Purchase typically offers lower payments than a Hire Purchase or lease agreement. This is due to the due to the balloon payment at the end of the contract. You have the option to return the vehicle at the end of the agreement if you don’t want to, or can’t afford to, make the balloon payment. You become the vehicle’s owner once you make the final payment.
Generally, you can only recover VAT on the service element or the VAT invoiced upfront on business vans and commercial pickups. VAT on company cars is not reclaimable.
Business Lease Purchase (BLP)
Businesses without VAT registration, wanting to skip big starting costs to own a vehicle, should choose Van Lease Purchase. In order to complete the purchase of the vehicle, you will need to make a final ‘installment payment’. The final ‘installment payment’ is a lump sum due at the end of your term. Van lease on Business Lease Purchase doesn’t include vehicle maintenance. This is because it’s purely a van financing product.
