Van Loans & Finance: [The Expert’s Go-to Guide To Van Finance – All You Need To Know]

David Allan

Written by David Allan on July 10, 2018

Updated July 10, 2018

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Whether you are looking to purchase a van for your business or for personal use, finding the funds to buy a new vehicle can be a struggle. A van is often much more than just a useful vehicle for getting you from A to B, it is part of the team, and whether you are upgrading to something more high-spec or purchasing your first van, it is vital to consider your finance options carefully.

There is a range of different options available for funding the purchase of a van including loans and finance agreements, and it is essential to understand which option suits you best. Some people are in the fortunate position of having the savings available to pay for a new van outright, but if that isn’t the case, you will need to spend time researching the various options available to you.

Buying a van outright will give you the added benefits of being able to drive, modify and adapt your new van however you like, which is not always the case with some financing options. Owning a van for business use can also be used as a business asset, and if necessary, used as collateral for a business loan.

Some van loans and financing options give you all the benefits of owning a van outright, while others come with limitations and regulations that must be followed. It is essential to properly understand the various options available and what they mean to you and your business.

Get pre-approved for a van loan before heading out to go van shopping, so you know exactly what your limit is. This limit will be dependent on you, or your businesses, financial situation.

What is a van loan?

If you want all the benefits of buying a van outright, then a van loan or personal loan is a great option. Van loans allow you to buy the van outright by borrowing the money to fund the purchase, although sometimes they require you to use the new van as collateral against the loan amount. A van loan is a type of personal unsecured loan that is used to purchase a vehicle, either for business or personal use.

You could also use a general personal loan to purchase a van; these are usually unsecured loans provided by a bank or other lender and paid back over an agreed period of time. Van loans typically operate as a secured loan, using the vehicle purchased as security against the funds. If the repayments are not made on time, the van can be repossessed and sold to repay the loan amount. Using an unsecured loan for purchasing a vehicle usually requires a very high credit score, and you will most likely have to pay a higher interest rate.

As with any type of loan, you will be required to pay back the loan amount plus interest and any necessary fees within the agreed loan term. Van loan providers may use the van you are buying as security over the loan amount, meaning they can repossess and sell the vehicle should you fail to keep up with the repayments. These types of secured loans are often more readily available to those even with a poor credit rating, as the van being used as security makes you less of a risk to the lender.

If you are buying a van for business use, some banks and lenders may offer preferential business rates or additional features such as delayed repayments to help with business cash flow.

Check the criteria of any personal or business loan before making the application to make sure you are eligible for the finance. Being turned down from a loan will leave a mark on your credit history, so be sure only to apply when you know there is a good chance of being approved.

What is van finance?

If a van loan or personal loan isn’t for you, or you want a more flexible way of purchasing your new van, then it can be worth looking into the various van finance options that are available. Van finance gives you the opportunity to split the cost of buying the van over a set duration, paid back in monthly instalments with added interest and sometimes additional fees.

They work as a contract between the borrower and the lender, where you pay for the van over a period of time. There is a range of different van finance options available, each suited to different scenarios and situations. Some will result in you owning the van outright at the end of the finance agreement, while others require the van to be handed back to the lender or dealer. It is essential to properly understand the different types of van finance available before making a final decision.

Most dealerships, brokers or vehicle supermarkets will offer some kind of finance scheme, usually funded by a finance company or bank which will also service the agreement, manage the account and collect payments. When applying for van finance, the majority of lenders will complete a credit check on either the individual or company to determine how likely they are to keep up with monthly repayments.

Borrowers with a poor credit rating may struggle to be approved for a van finance agreement, so it isn’t a realistic option for those with bad credit. If van finance repayments are not kept up, it will have a negative impact on your credit score.

If you have your sights set on a brand new van, then van finance can be a great way of getting an expensive vehicle that you couldn’t normally afford and paying it off over a more extended period of time. Some van finance agreements offer credit terms for up to 60 months and the longer the finance duration, the lower the monthly repayments, although the amount of interest you pay in the end will be higher. It is vital to remember that vehicles lose their value very quickly and with long-term finance you could end up repaying much more than the van is worth.

Be careful to fully understand the terms and conditions of a finance agreement and get a signed copy of the documentation before driving your new van out the dealership. Once you have driven away in your new wheels, there is little that can be done if you don’t agree with the finance terms.

What is the difference between van finance and a van loan?

It is very important to properly understand that van finance and van loans are two very different agreements with significant differences in how they work. Van finance is an agreement with a finance company to make monthly payments for the use of the vehicle, whereas a van loan is generally offered by a bank or finance company and allows you to borrow the funds to purchase a vehicle outright and then pay back in monthly instalments.

Van finance is essentially paying to hire the vehicle for a fixed amount of time as you are usually not the legal owner of the vehicle while it is in your possession. When buying a van with a van loan, you will be the legal owner of the vehicle from the first day you purchase it.

Whether you buy a van using finance or a loan also has a big impact on what happens if you choose to sell the van. If you get a van using van finance the vehicle will technically belong to the finance company until the full amount has been repaid. This means if you decide to sell the van while the legal owner is still the lender, the vehicle could be repossessed from the new owner if repayments aren’t kept up. This is a very different situation to a van loan, where there is no future impact on the vehicles new owner, even if the loan amount hasn’t been settled. If you do choose to sell a van purchased using a van loan, you will still need to pay off the remaining loan amount, either with money from the sale or by continuing the monthly payments for the duration.

If you are ever considering purchasing a second-hand vehicle, whether it is a van or car, run a finance check on it to make sure it hasn’t previously been financed and still owned by a lender. The last thing you want is your new vehicle being repossessed because the previous owner hasn’t made the repayments.

What types of van finance are available?

When it comes to van finance, there are a few different options available. Make sure you properly understand all your options before making a final decision on which is right for you or your business. The main types of van finance are:

Contract Hire

Contract hire for purchasing a van works similarly to a van loan in the sense that you pay a deposit upfront and then make monthly repayments with added interest, the only difference is that you will not be the legal owner of the vehicle for the finance duration. Usually, the deposit required is small, and then the remaining value of the van plus interest is paid back in monthly instalments over a number of months or years, once the final payment has been made, you will then simply return the van to the lender.

Monthly instalments are usually low, making this an excellent option for businesses who want to keep costs down and may need to change vans often, with no intention of keeping the vehicle. The overall cost of a contract hire finance agreement is dependent on a number of factors such as the length of contract, type and value of the van, and agreed on mileage limits.

You may need to pay additional fees if mileage limits are exceeded, or the vehicle is damaged in any way. An added benefit for using contract hire for a business van is that often all overheads are combined into one monthly price, such as a road tax, making the cost predictable and really easy to pay everything together.

Pros:

  • Fixed monthly payments for easy budgeting and cash flow
  • No balloon payment at the end of the agreement
  • Allows you to upgrade your van regularly
  • No hassle of trying to sell the van when you want a new one
  • Low monthly payments compared with other van finance
  • Access to a range of new vans that might have been out of your budget to buy outright

Cons:

  • Upfront payment of anywhere between three and 12 monthly instalments required
  • You will not be the owner of the van
  • No option to purchase the van at the end of the finance agreement
  • There is usually an agreed mileage limit that must be stuck to, or additional fees will be charged
  • You must commit to the contract length, and if you want to amend or leave the contract before the end date there may be expensive charges

Hire Purchase (or Lease Purchase):

A hire purchase finance agreement works similarly to contract hire agreements but gives you the added benefit of owning the van outright at the end of the contract. Usually, the deposit amount is large, and then monthly repayments are fairly low. In lease finance, if you do want to keep the van at the end of the contract, there will be another large payment, known as a balloon payment.

Some lease and hire purchase providers will accept an old van as a deposit on the new vehicle, allowing you to keep initial costs to a minimum.

Hire purchase agreements are one of the most common ways of financing a vehicle in the UK. The finance agreement is secured against the vehicle, so you do not own it during the duration of the contract. At the end of the contract, you will have the choice to either return the van, take out a new hire purchase agreement on a new van, or make a final payment to own the van outright.

Interest rates for hire purchase agreements vary significantly between providers, and often different contracts will include different things such as servicing and insurance. Be sure to thoroughly check all terms and conditions of an agreement before making a final decision.

Pros:

  • Fixed monthly payments are usually fairly low
  • Flexible contract lengths and mileage limits are available
  • Gives you the options to own the van at the end of the contract period
  • Gives you the opportunity to give the van back without the hassle of selling
  • Access to a range of new vans that might have been out of your budget to buy outright

Cons:

  • Often Hire Purchase agreements are tied to one van manufacturer
  • Some providers will give strict mileage limits that will result in additional charges if they are exceeded
  • A large upfront deposit is required
  • To keep the vehicle at the end of the contract, a large balloon payment is required
  • You cannot sell the van without settling the finance agreement
  • You will not be the legal owner of the vehicle until the end of the contract, and the balloon payment has been made

Annual Investment Allowance

If you are looking to purchase a van for your business, it can be worth considering your Annual Investment Allowance (AIA). HM Revenue and Customs allow you to deduct the value of any business investments made from your tax bill. Currently, the AIA limit is £200,000 for the tax year, and this allowance includes vans but not cars.

It can be tempting to go and buy a van outright and offset the cost against your AIA, which can be a great option, but you can also put monthly finance payments towards the allowance too. This allows you to offset the cost of your new van across multiple tax years, instead of one big lump sum, leaving your AIA to go towards other essential business investments such as equipment and tools.

Some finance agreements will not qualify AIA, so be sure to check with your accountant before making a decision on your new van.

Pros:

  • Offset the cost of your new van from your tax bill
  • Either purchase your van outright or use a finance agreement to spread the cost
  • Keep the money within your business

Cons:

  • Not all finance agreements qualify for AIA
  • You must be a small business

Whether you are buying a van for business or personal use if repayments are missed your van will be at risk of being repossessed. This can also negatively impact your personal or business credit score.

Who can get van finance?

Applying for van finance is very similar to applying for a loan or credit card, just with a vehicle purchase in the mix as well. The van finance provider will need to run a full credit check during the application process to determine if you are eligible. The majority of finance lenders will only accept either a good or excellent credit score, whether it is a business or personal application.

Your credit score is not the only aspect that is considered when your application is reviewed; the lender will also look at your income, other debts and ability to make the monthly repayments.

If you are applying for van finance as a business, you will need some extra documents and information to hand in order to complete the application. Usually, if you are a self employed sole trader, partnership, limited company or LLP applying for van finance, you will need to provide:

  • Company details including name, full address, company registration number and an annual turnover
  • Director details including name, date of birth and marital status
  • Business bank details including name, sort code and account number

In some cases, there may be additional information required, for example, if you have been trading for less than a year or have previously been refused any type of vehicle finance. This additional information could be recent bank statements or management accounts, and sometimes even a director’s guarantee.

For personal van finance, you will need to be over the age of 18 and usually have a good credit score. However, there are some finance providers who specialise in finance for individuals with a bad credit rating and lenders who can assist with the help of a guarantor. These specialist lenders generally charge higher interest rates, and the amount you can spend on a vehicle may be lower due to lending limits.

Before making an application for van finance, make sure you can comfortably afford the monthly repayments. Missing payments and defaulting on the finance agreement can lead to your new van being repossessed and negatively impact your credit score.

How much does van finance cost?

There are a huge number of van finance providers out there, and all of them will offer something slightly different. Whether it is a different interest rate, different service package or different terms and conditions, all of these factors contribute to the overall cost of the van finance. The interest rates on van finance can range massively, so it is vital to make sure you do your research to find the best deals available at the current time.

Some van finance providers may offer 0% interest special offers, these are usually on specific vehicles and have restrictive terms and conditions but can be a great way of getting a cheap finance deal. Look at mileage limits and what the charges are for exceeding this limit, and also consider whether servicing and maintenance are included in the monthly fee.

It can be tempting just to accept the van finance agreement offered by the dealer, but it isn’t always the cheapest option out there. Do your research and know your options before heading to the dealership to pick out your new van, that way you won’t get stuck in a pricey contract because of a spontaneous decision.

Who can get a van loan?

The criteria for being approved for a van loan is varied and depends completely on the lender. Usually, you will need to be over 18 years of age and able to provide proof of income. The size of the loan you will be offered is dependent on your income and credit score.

There are hundreds of lenders offering van loans for both business and personal use. Shop around and compare the various options available at the time. Make sure to look at the interest rates and repayment terms when comparing your options.

How much does a van loan cost?

Like with most loans and finance options, the total cost of a van loan is hugely varied across the market. Every lender will offer a different interest rate, making some loans much better deals than others. It is very unlikely that you will get a van loan with 0% interest rates like you can with some van finance, but there are often special deals with promotional interest rates available.

It is crucial to shop around when looking for a van loan, although bear in mind that lenders may not offer you the advertised rates and prices. Many lenders operate risk-based pricing, where they will only offer the best deals to the most creditworthy applicants.

While shopping around is important when choosing a van loan, be careful not to make multiple applications. This can have a negative impact on your credit score and reduce your chances of being accepted.

Advantages of a van loan

When deciding how best to finance your new van, it is essential to properly understand all the options and the pros and cons of them all. Van loans, like with any type of finance, have their advantages and disadvantages that should be considered before applying. The advantages of van loans include:

  • Freedom to choose a lender that suits you and your needs
  • You will be the legal owner of the van from the day of purchase
  • The van can be sold at any point, even before the loan is fully paid off
  • Deposits are usually fairly small compared with van finance options
  • Most lenders will let you make additional payments to pay off the balance early should you wish to
  • There are no mileage limits or additional mileage fees like with van
  • finance.

Before applying for a van loan, check your chosen lender is regulated by the Financial Conduct Authority (FCA) and read all of the terms and conditions to make sure you fully understand them before committing.

Disadvantages of a van loan

The disadvantages of van loans include:

  • The monthly repayments are just for the loan amount and interest; they do not include any servicing, maintenance or tax as with some van finance
  • If your van is used as security on the loan amount, it is at risk of being repossessed if repayments are missed
  • If you do choose to sell the van and it is security on the loan amount, you may need to ask your lenders permission to sell
  • If the van is damaged during the loan duration, you are still required to continue making the payments until the balance is settled
  • Failing to keep up with repayments will have a negative impact on your credit history
  • Missed repayments will result in late payment fees and additional interest.

Check your credit rating with a credit reference agency before applying for a van loan to assess your ability of being approved. The higher your credit rating, the better deal you will be offered.

Alternative options for buying a van

As well as van finance and van loans, there are a few other options available to you for purchasing a new van. It is essential to consider all the options before making a final decision on the best one for your situation. Purchasing a van is a big investment, and it is vital to find the best way to fund it without overpaying or ending up in an unmanageable amount of debt. Here are some of the main alternatives to van finance and van loans:

Unsecured Loans: This is very similar to taking out a van loan. However, the vehicle will not be used as collateral for the loan amount, and the money can be spent however you please. Individuals with poor credit ratings may struggle to obtain an unsecured loan from the bank, but if you can be approved for an unsecured bank loan, then interest rates and repayment terms are often better than those offered with van loans.

Credit Card: Credit cards are a great way of spreading the cost of any large purchase, including a new van if you are eligible for a 0% purchase deal. Depending on the type of credit card you choose, you may end up paying more than you need to in interest rates, however, if you shop around for a good deal, you can often find cheaper options. Credit cards give you added the advantage of choosing how to stagger the repayments in a way that suits you.

Home Loan: This one can be a bit of a risky option, but if you are a homeowner you can use your property to help fund your new van. The equity in your home can be released using a second mortgage, giving you a lump sum of cash to spend as you please. Interest rates on homeowner loans are often less than those on personal loans because they are using your property as security over the loan amount. Homeowner loans also allow extended repayment terms of up to 30 years with some lenders. If repayments are missed however, it can result in repossession of your property.

Credit Unions: Credit unions offer loans at competitive rates; however, you will only be able to access them if you meet specific requirements, usually based on location and employment. Members of a credit union can often take advantage of the exclusive conditions and rates on loans. They are usually personal unsecured loans that can be spent as you please, allowing you to purchase a new van outright.

If you do not know the best finance option for your needs, speak to a vehicle finance broker like Carfinance247 or Zuto for impartial expertise to best suit your situation. They have access to multiple lenders to suit all credit types and applicants.

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