Are you considering an electric van? Dan Powell from Honest John Vans explains your finance options.
Electric van finance can be confusing, but the process is actually relatively simple with the cost of the vehicle being spread over monthly payments. The cost of the payments will depend on the type of finance package you choose and the value of the vehicle. You may also be charged interest (APR) and fees for damage of excess mileage, which means the total cost of the vehicle may be higher than buying it outright.
As with anything, it’s essential to read all of the documents and understand what you are agreeing to. It’s also wise to shop around as a bank loan or a different financial package may be cheaper than what’s offered in the first instance.
When it comes to electric van finance, it is usually split across four options: leasing, contract hire, personal contract purchase and hire purchase. In all cases, you will be signing a financial agreement that will commit you to the duration of the agreed contract.
Leasing
‘Leasing’ is basically a long-term vehicle rental that is split between two and four years. You pay an up-front fee, plus monthly payments for the length of the lease. The management and maintenance of the van is handled by the leasing company. There is no depreciation to worry about and at the end of the contract you return the vehicle to the manufacturer or finance company.
Leasing deals can be one of the cheapest ways to finance a new van, but there’s usually no option to buy the vehicle at the end of the contract. Most leasing agreements will also restrict the number of miles you can drive in a year, which means you’ll be charged if you exceed the agreed limit.
Contract Hire
Similar to Leasing, a Contract Hire agreement is a long-term vehicle rental. The term is typically between one to five years and often has a mileage limit for the hire period. These agreements are attractive to small businesses due to the fact that they only require a small initial outlay.
Maintenance is often included in the contractual agreement, however, the van must be returned in reasonable condition and any damage will result in a penalty fee. As you do not technically own the vehicle there are no depreciation costs and the monthly payments are allowable against tax.
Personal Contract Purchase (PCP)
PCPs are very popular. Instead of paying off the entire value of the vehicle over the term of the agreement, you only pay off the depreciation. As a result, the deposit and monthly payments tend to be lower than a traditional hire purchase agreement.
A PCP will let you spread the cost of the finance over a number of years. Payment is split between an initial deposit, followed by monthly payments over the term of the contract and an optional ‘balloon’ payment at the end (which you pay if you want to keep the vehicle).
The advantage of PCP is the options you get at the end of the contract, which lets you buy the vehicle, swap it for a new model (and new PCP agreement) or walk away.
Paying the ‘balloon’ payment means you can keep the vehicle and this can be split over two or three years if you cannot afford the lump sum. Alternatively, you can return the van to the dealer and put any equity towards the deposit for a different vehicle or walk away from the agreement altogether.
As with any finance agreement, a PCP will require you to commit to the finance agreement for three or four years. You will also be asked to agree to a mileage limit and you’ll be charged a fee if you hand the van back with any damage.
Hire Purchase (HP)
In a hire purchase contract, the cost of the van is split into a deposit and monthly instalments, plus interest, which is paid over a number of years. The loan is secured against the van, so you do not own the vehicle until the final instalment is paid.
HP is similar to a PCP, but the full cost of the van is spread across the contract. There is no ‘balloon’ payment, but the monthly costs tend to be higher. The same risk applies to both hire purchasing and PCP; if you cannot afford the payments, you will have to return the vehicle.
