Swiss Vans Guide to Van Finance
We hope that this guide might help you if you’re new to van financing, and we’ll do our best to explain VAT and different types of finance. It’s just our take on things, so please bear in mind that there will always be exceptions. Just like with everything in life!
And of course, we also do great cash deals, so if finance isn’t your thing, no problem. However, it’s important to remember that, while people often think that cash opens a magic door when it comes to price, that’s often not the case with vehicles. Manufacturers often give additional discounts and support on finance deals; this can run into the thousands, and as it’s “hidden” in the form of finance, it can preserve resale values. There’s a saying that “today’s discount is tomorrow’s depreciation”, so it’s worth bearing that in mind.
Cash purchases depreciate in the same year, but then again, if a company has a very large tax bill, a cash, all-in-one purchase might make sense! Sometimes though, if you’re considering a cash purchase, Hire Purchase or Lease Purchase might be a good alternative. It’s great for those who are credit blacklisted, and you get 100% depreciation for tax in the same financial year. And discounts from manufactures are generally lower on HP/Lease Purchase than on cash sales. It’s also worth looking into pre-registration, as that can also help you to achieve similar discounts.
Since a van is a commercial vehicle, you can often claim the VAT back. However, there are some exceptions. For example, if the payload on a kombi / double cab is less than 1000kg, VAT can’t be reclaimed. It’s also not possible for models like the VW Caravelle, which are considered to be more like a car.
All in all, how you to choose to finance (or not!) your vehicle is a serious decision, but we’ll do our best to help you decide by presenting the facts and information as we understand them.
Different Finance Methods
We’ll give you a quick overview now of the different finance methods available. More information can be found on their individual product pages, but this should get you started at least.
Van Hire Purchase (HP)
Hire purchase is very similar to a cash purchase, and the van is depreciated in the same year. If there is a balloon payment — a large final payment at the end of the contract term — then it’s known as lease purchase. Traditionally, the VAT must be paid upfront, but this has been relaxed in recent years. HP suits VAT-registered businesses, and ownership is automatic at the end of the deal. Agreements range between 12 and 60 months, and you can part exchange at any time with no penalties.
Lease purchase is a form of HP usually with some form of final, or balloon, payment.
Different finance companies calculate the final payments in different ways. Some use current auction values as a guide, while others work to a percentage of the original value. The balloon payment at the end of the contract makes it possible to reduce the monthly payments (which are often quite high in HP agreements). Like with HP, ownership of the vehicle is automatic once all payments have been made, and part exchange is possible at any time.
For companies with fewer than 10 vans, finance lease is easily the most popular method for van finance. It’s supported by manufacturers in that they often offer greater support and discounts than they do for cash or other types of finance. Finance lease preserves the vehicle’s resale value, which is of course good for customer and manufacturer alike. And if the van is well-looked after and has equity at the end of the contract term, you can keep that profit. Ownership is not automatic with a finance lease, but it is possible to arrange it with some paperwork and a third party. As for part exchange, you can PX or settle your outstanding balance at any time after the first 12 months of the contract. Its known as a van lease
How to Get Finance
Sole Traders & Partnerships
Finance companies can often make automated decisions here. They will have a point-scoring system, and each company has their own considerations. Most people have heard of Experian for credit checking.
In an Experian credit check, the following things are assessed:
- Whether you’ve ever had any missed credit payments even if for something small and silly.
- If you have any CCJs (County Court judgments) or an adverse credit history (e.g., if you have an outstanding gas bill from three years ago).
- If you’re on the electoral roll. If not, you can register here.
- If you’re traceable. Sometimes people have multiple addresses, particularly after a divorce. However, they can trace you from a bank statement sent to your parents’ house!
- Finance companies often require a valid driving licence registered to your current address. (On this note, please be sure to tell us the address on your licence.)
- Many banks use their own credit-checking service instead of Experian. It’s possible that even if your Experian score isn’t perfect, you might still get finance through our bank-related funders.
A Limited Company’s credit score is checked by a Delphi score; this is the Experian rating for companies. However, a very new company won’t have a credit score. The assessment for a Delphi score is more or less the same as for an Experian rating: payments history, CCJs, etc., are all examined.
Net Worth On Companies House
This is perhaps the main consideration. Your company’s net worth is public information, and if it has high net worth, obtaining credit will be easier. The opposite is also true. Generally, you can borrow up to 25% of your company’s net worth. If you’ve already used that to buy another vehicle previously though, it may be harder.
Credit checkers will also look at the company’s directors. If any of the directors have a “colourful” history, lenders will often say no. This might involve, for example, starting and then closing down lots of companies.
- An established business
A company with 10 years of accounts and a great Delphi score. In theory, there should be no trouble getting finance as long as the company hasn’t over-borrowed on other loans.
- A younger company
A company that’s three years old with three sets of accounts and a net worth of £50,000: this is a borderline Often, much will depend on the financial strength of the director(s). Lenders will frequently ask for a personal guarantee.
- A new company
A company that’s maybe 14 months old. There aren’t really any accounts to speak of, so there’s no verifiable net worth. Especially if there’s no previous sole trader company, it’s unlikely that the company will get credit without a guarantor.
You Can Always Try
The only sure-fire way to know whether or not you’re eligible for finance is to try. Give us a ring, have a chat, and we’ll do our best to advise you. We help people find the best deals for their circumstances every day, so we may well be able to help you too.
Hopefully this guide has cleared things up a little, but if not, or if you have any questions, we’re always at the other end of the phone line. Well, almost always: we do sleep sometimes!
Van Hire Purchase
Van hire purchase is the most simple basic form of funding. Its a loan secured against the van. Its also named Lease Purchase but lease purchase is usually with a balloon at the end. This is a an ownership scheme. Check with your accountant but for the last few years hire purchase has enjoyed 130% tax deduction to encourage asset purchases. This is named “super dedication.”
The goverment love hire purchase have a look here
Explode the Myths
VAT & Van Hire Purchase
Lets explode a few myths here as things have changed a lot in recent years. Traditionally VAT is placed upfront but in recent years this has relaxed and there are a few funders out there that will defer VAT for up to three months. In fact there are even a few funders now that will finance the VAT.
A ballon is a slang but widely accepted term for a large final payment.
Some finance companies allow percentage of the purchase price while others use quite complicated equations and auction feeds.
Typically a balloon is worked out to about 85% of its auction value excluding any extras adjusted for mileage. Thus a driver who does 100,000 miles a year will have higher payments and a lower balloon that a 10,000 mile per annum driver
HP and Lease Purchase get a 100% tax write down all in the same year.
So it suits companies that want to shed as much as possible that financial year. Thus is you are a new start company or your profits are low finance lease is often a better method as it transfers some tax savings into later years.
Who does Van Hire Purchase Suit?
Flat rate VAT customers for sure. Large VAT registered companies.
Customers buying a motor home, intact anyone who wishes to take ownership of the van at the end. The payments are often a great deal higher than finance lease for example.
Finance Lease Declines
If you are declined on finance lease or contract hire we can still often get you a line of credit on HP. Its because a banking credit check is often different to an Experian one but our rates are far far lower than you will get from your high street lender. They rely on you walking in
The most popular payment method with our customers, a finance lease is ideal for small businesses and sole traders who can’t pay the full cost of a van upfront. Some companies will also be eligible to reclaim any tax they have paid on their commercial vehicles if they are VAT-registered. The technicalities can be complicated to understand, so we’ll do our best to explain everything.
In a finance lease, the cost of the vehicle is spread out over an agreed period of time — usually 3-4 years — with fixed monthly payments. You can opt to include a balloon payment at the end of your contract, which can lower your monthly payments.
At the end of the agreement, you must sell the vehicle to a third party on behalf of the finance company. If the van is sold for more than the value of the final balloon payment, then you can benefit from the equity. This can allow you to get a new vehicle if you put the equity from the old van towards a lease on a new van. However, if the van is sold for less than the agreed residual value, you will be liable to cover this shortfall.
It is also possible to buy the van back yourself from the third party at the end of the deal.
For businesses, a finance lease can be advantageous. Businesses gain control of a van during the hire agreement, using it as their own while having it on the books as an asset. However, the finance company remains the owner of the vehicle.
What is a balloon payment?
A balloon payment is a pre-agreed sum that is due at the end of a finance-lease deal. While a balloon payment usually enables you to have lower monthly payments during the agreement’s term, it is a sum of money that you must be able to pay off when the agreement is finished. Normally, the sale of the vehicle covers the balloon payment. However, if the van has excessive damage or milage, the resale value may be lower than expected. If what you gain from the sale of the vehicle is less than the balloon payment, you will be liable to pay the remainder.
Our sales team are experts on the finance lease, so they’ll be able to answer any further questions you may have. And of course, we have other van leasing options if a finance lease isn’t for you.
Advantages of a finance lease
- Brand new vehicle
- Low initial payment
- Minimal capital expenditure
- Accurate monthly budgeting with fixed monthly payments
- Option of a balloon payment to lower monthly payments
- Tax can be reclaimed on commercial vehicles* by VAT-registered businesses
- You can keep most of the equity following the sale of the vehicle at the end of your contract
*A commercial vehicle is classed as a vehicle with a weight which is greater than 3.5 tonnes or that is capable of shifting a payload of over a tonne.
Disadvantages of a finance lease
You don’t own the vehicle
Operating costs are your responsibility
Fully comprehensive is the the only accepted level of insurance
There is a risk of negative equity should you request to settle the agreement early
Van Hire Purchase & Manufacturers
Van Lease Purchase
Lease Purchase Deposit
VAT upfront as a a minimum so this is favoured by a VAT registered business as it can be reclaimed. There are a few funders that will delay the VAT by up to three months.
A larger deposit can be placed by this method also
Lease Purchase Final Payments
A final payment is set in two ways and it really depends on the funder. Either a very large final payment based on the residual value of the van. This is mostly done by manufacturer finance companies and the mileage is often considered. Van Leasing
Or cheaper deals are often available. Unlike many van companies we can do things on van finance other can’t due to the way they buy their vehicles.
Lease purchase is very similar to van hire purchase except it has a balloon in most cases. A good example of this would be Ford Ranger Finance
Take ownership of the van with technically no deposit and write the van go down in one swift stroke. Lease Purchase and hire purchase are really the same product but lease purchase often has a balloon.