Contract Hire vs. Finance Lease vs. Lease Purchase for vans — which is best?

Choosing to lease your next van with Synergy is your best option if you’re looking to develop your business. Business leasing can be a great way to secure a brand-new van and comes with a range of benefits.

Not only can business leasing make financial sense, but it can provide access to reliable and efficient commercial transport. There are various van finance types to choose from, whether you’re adding to an existing fleet or investing in a commercial van lease for the first time.

Synergy can help match the right finance type to your business needs, ensuring you get the best van finance lease deal.

What is Contract Hire on a Van?

The most popular way of financing a van with Synergy is Business Contract Hire (BCH). This is available to a variety of business types, from sole traders and PLCs to limited companies.

If you choose contract hire, the finance provider will remain the vehicle owner. Once the term of the agreement ends, the van will need to be returned to the leasing provider, and a new lease van can be ordered.

This finance type is particularly popular with businesses looking to change their vans regularly. Because the finance provider remains the van’s owner, this removes any risk of depreciation and disposal costs.

Pros and Cons of Contract Hire Vans

There are several key benefits to using contract hire. Monthly rentals are fixed for the lease term, helping customers budget their outgoings. An additional maintenance package can then be added to these payments, helping cover the cost of servicing and repairs.

VAT-registered companies can claim back 100% of their VAT on vans used for business use only, in addition to the manufacturers’ warranties still applying and road tax included in the monthly cost.

However, there are still some things to consider before entering into a contract hire agreement. If you exceed the agreed mileage whilst leasing the van, an extra charge will apply, which might be worth considering if your business averages higher miles.

It will remain your responsibility to insure the van with fully comprehensive cover and that it is maintained using the standards set out in the BVRLA Fair Wear and Tear Guide.

What is Finance Lease on a Van?

Finance lease is predominantly used when leasing a commercial vehicle or van. It’s proved a popular option for limited companies, the self-employed, and sole traders. If you choose a finance lease van, the vehicle can be leased in one of two ways.

The first option requires you to pay higher monthly installments for the duration of the agreement, which go towards the entire van cost.

The second option is to make lower monthly payments and pay a balloon payment at the end of the lease term.

At the end of the contract, there won’t be an option of owning the van or returning it to the finance provider. Instead, a finance lease requires you to sell the van to a third party, where you receive around 98% of the sale proceeds, with a small percentage paid forward to the finance company.

Pros and Cons of Finance Leasing a Van?

A finance lease offers fixed monthly payments and low upfront costs, allowing business owners to spread the cost of their van over the lease term. This finance type also benefits from no excess mileage charges — ideal for businesses that average higher miles.

It is worth noting that once the van is sold to a third party, you will be responsible for paying the difference if the proceeds are less than the agreed residual value.

What is Lease Purchase and Hire Purchase?

Lease purchase and hire purchases are finance packages ideal for organisations seeking to own their lease van eventually. The van belongs to the company as soon as the lease contract has started and will be registered in the company’s name throughout.

You then make fixed monthly payments towards owning the van, which differ depending on the finance package chosen.

Lease purchase agreements require a balloon payment at the end of the agreement, offering lower monthly payments as a result. Whereas hire purchase divides the total cost of the van across higher monthly payments, meaning a balloon payment isn’t required. The vehicle will remain a company asset and appear on your balance sheet, allowing you to offset the van’s value against taxable profits.

Pros and Cons of Lease and Hire Purchase Vans?

These types of finance packages can offer lower payment options and are often an easier route to ownership. There is no need to worry about excess mileage, and at the end of the contract, you can retain ownership and decide your next steps.

There are still some considerations to make when looking at lease and hire purchase vans. The vehicle must be purchased at the end of the contract term, regardless of your circumstances. As you will own the van, depreciation will also need to be considered, as you could end up paying higher than the value of the vehicle.

The Main Differences at a Glance

Which is the Cheapest Option for Financing a Van?

Finance lease van deals can change regularly, and there is no specific finance package that can guarantee to be the cheapest option. We’d suggest contacting our team for more information and help finding the best finance package to suit you.

What is the Best Way to Finance a Van?

There are several ways to finance your next van and the best one will depend on your individual business needs. Think about the type of van you require, whether that’s an all-electric van or a more traditional medium van, and if you’re interested in ownership or want to hand it back at the end of the agreement.

You will always need to consider the BVRLA’s Fair Wear and Tear Guide when leasing a van. Consider how your business will use the van during the lease, any modifications that might be made and the condition in which the vehicle must be returned at the end of lease agreement.

If you don’t want to own the van and prefer to keep running costs to a minimum, contract hire may be the best option for your business. But if you want to avoid excess mileage charges and receive a percentage of sale costs at the end of the contract, we’d suggest looking at finance lease packages.