Cheap van finance and advice

The boom in alternative finance methods over recent years may have reduced the popularity of loans, but what has also happened in that same time is the diversification of the banking and financial sector. Today there are hundreds of financial institutions outside of the big banks that offer loans, and this level of competition is good news for the consumer. Add into that the proliferation of price comparison sites and in just a few minutes you can compare a huge variety of loans, making it so much easier to compare and get the best deal. 

Having the money up front also puts you in an advantageous position when it comes to getting the vehicle you want too. The days when having cash in your hand would get you a discount are largely gone; dealerships generate a significant proportion of their revenue from finance and associated products, so there’s no incentive for them to give you a cash discount. What it does give you though is flexibility and the opportunity to make a deal quickly; if you see the right van for you it could take just a few minutes to strike a price and sign on the dotted line instead of applying for finance and waiting for a decision.

One further advantage of taking out a loan for the purpose of purchasing a van is that the finance is not tied to the vehicle in any way. With dealer finance for hire purchase or a contract purchase the vehicle does not belong to you or your business until the payments are complete. This can cause issues if the vehicle is written-off or stolen, or there are problems with your business or even the finance company. If you purchase the van with a bank loan the vehicle becomes your property immediately, and can be sold to raise funds or if not needed at any time.

Important:

• Separating the finance from the vehicle itself has its disadvantages, chiefly that any bank loan becomes a debt attached to the business, and while the van becomes an asset at the same time its value will likely be less than the remaining balance of the loan during the duration because of depreciation.
  
  
• If the vehicle were to be written-off or stolen any van insurance payout would almost certainly be significantly less than the balance of the loan unless you have GAP insurance.
  
  
• While a bank loan gives you a fixed cost in terms of the repayment, all associated costs of the van must be accommodated separately. Maintenance, repair and consumables must all be paid for in addition to fuel and can vary significantly depending on how the vehicle is used. Failure to maintain the vehicle properly can also affect its retail value as well as increasing the likelihood of breakdowns and time off the road.
  
  
• A bank loan for a higher-priced vehicle may not be available to all businessess. Larger, higher-specification vans can easily exceed £20,000 and if your business is new, small or still recovering from tough financial times a loan of that size may be completely out of the question, or only available at an expensive rate of interest.

The main benefits of leasing a van are that the management of the vehicle can be passed on to the company you are leasing from. Most leasing deals include a maintenance package so this is a cost you can avoid, there is no cost for depreciation as the asset does not belong to you and at the end of the term you can simply return the vehicle.

From a financial perspective, leasing deals usually have a low initial payment which cuts the cost of getting the van working for you, and the monthly payments are also allowable against tax which compares favourably in terms of cost compared to an outright purchase. You also have the benefit of a fixed monthly payment taking care of everything bar fuel, which is helpful from the perspective of budgeting ahead.

Leasing also allows companies that require multiple vans to run a larger fleet based on fix sum, as the initial payment plus monthly are the only ongoing costs.

Important: 

• One of the key downsides of leasing a van is that you have to abide by the terms and conditions of the agreement or face financial penalties. These terms usually include the vehicle condition including mileage, and normally it has to be returned to its original condition, which may present issues if significant additional interior fittings have been used.
  
  
• Another downside is that you are locked into the agreement for the duration unless you pay an exit fee. If your circumstances change and you no longer need the van or require a different vehicle there will be a cost involved to change the situation.

A contract hire agreement is similar in principle to hiring a vehicle from a rental company; you agree a period and hire the vehicle for the duration, except that the term is typically between one and five years rather than days or weeks. As with a conventional hire you do not own the vehicle at any point during the agreement.

Contract hire deals usually require only a small initial outlay, frequently equivalent to a month’s rental. This makes it an attractive option for smaller business or if you are looking to avoid any large financial commitments, compared to a hire purchase that normally demands a big deposit.

A further benefit of the small initial outlay is that you have the potential to hire a larger fleet of vehicles for less money than taking out a hire purchase agreement. For smaller business that do not have as much capital behind them, a contract hire allows efficient and relatively inexpensive expansion to create a fleet of vehicles. The other aspect of this flexibility is that you can decrease the size of your fleet equally easily, making it an attractive option for businesses where workloads fluctuate.

Another big positive of a contract hire vehicle is that maintenance is usually included in the agreement, saving you a significant sum of money as well as time and effort. Other than the cost of fuel, a contract hire allows you to plan for a fixed cost over the duration of the term.

Finally there are specific financial benefits to contract hire compared to other means of purchase or rental. As the vehicle is not owned by you during the period there are no depreciation costs to you, while the monthly payments you make for the contract hire are allowable against tax so there is no additional cost compared to a hire purchase.

Remember:

• A contract hire comes with a mileage limit for the period of the hire, with a charge of a few pence per mile applied for every mile over the agreed figure, something which could restrict the operation of your business or add a significant cost if you exceed the agreed limit.
  
  
• A van obtained through a contract hire must be returned in a reasonable condition taking into account fair wear and tear and the period of the agreement. Any damage over and above this will result in financial penalties. For certain types of business where frequent loading and unloading occurs or certain types of products this may make a contract hire vehicle an unsuitable choice

PCP stands for personal contract purchase, which is a means of buying a new vehicle where you pay a deposit, a fixed monthly payment over an agreed term and a final payment at the end of the term which completes the financial agreement and concludes with your ownership of the vehicle. It differs from a traditional hire purchase in that the largest payment - often called the balloon or future guaranteed payment - comes at the end of the term rather than the beginning.

If you need a new van for your business then a PCP can be a relatively inexpensive way of securing what you need. Typically the deposit on a PCP deal is 20 percent or less of the total vehicle value, which is often smaller than a deposit on a typical hire purchase deal.

Another advantage on a PCP deal is that you retain some flexibility when you reach the end of the agreement. In a traditional hire purchase you commit to purchasing the vehicle from the point that you pay the deposit, whereas with a PCP you can walk away at the time when the balloon payment is due, make the final payment and own the vehicle outright or take out a new agreement for a brand-new vehicle and agree a new term.

Remember:

• Because of the way in which a PCP is structured you have no rights of ownership until the final payment is made, so the vehicle cannot be categorised as an asset during the agreement period.
  
  
• PCPs usually come with a mileage limit; if you choose to hand back the vehicle at the end of the period there will be a penalty to pay for each additional mile, although this does not apply if you choose to make the final balloon payment. By the same token, the vehicle has to be kept in a satisfactory condition if it is to be returned, and anything over and above fair wear and tear may also attract a financial penalty.
  
  
• Until the final payment is made a van obtained via a PCP is effectively under hire, so any modifications that are required for your business must be easily reversible unless you commit to making the final balloon payment or potentially pay an additional fee for rectification work at the end of the term.

The basis for mis-selling of a financial product is broadly the same regardless of the product itself, whether it is a van loan, a bank loan, contract purchase or PCP; the crux of potential mis-selling is whether or not you were sold a product that was not suitable for you and your circumstances, the risks were not explained to you or you were given the wrong advice. Remember that the issue must be with the financial product and not the vehicle.

Important: 

• Depending on the nature of the product you may have a 30-day cooling off period - check all your paperwork carefully to see if this is the case - and make contact with the finance provider as soon as possible. If you have purchased finance through a dealership it is highly likely the finance itself will have been provided by a third party, and it is this company you will need to contact if you wish to cancel.

• If you are outside of the 30-day period and you believe you have been mis-sold a financial product, you must make a complaint to the provider as soon as possible. Go through all of your paperwork carefully and any communication you have with the provider, particularly if anything relates to provided information you feel was misleading. If relevant conversations were conducted over the phone, try and note down dates, times and ideally names of who you spoke to as recorded conversations could be recovered.

• Gather your information together and write to the dealer principle if your complaint is with a dealership or to the complaints department if it is a financial institution; the latter has to provide you with a copy of their complaints procedure if you request it. State your case clearly, concisely and calmly - accusatory or emotional statements are more likely to get a defensive response - and send your complaint by recorded post as a signature proves it was received and a response is required by law.

• If you are unsatisfied with the response you can approach the Citizen’s Advice Bureau and they may be able to look at your case and advise on the next steps to take. Alternatively you can escalate the complaint by taking your case to the Financial Ombudsman, a body set up by the government with the power to investigate a whole range of financial products.

You may have been happy with your van and the financial arrangement you took it out, but it may be that you are now having problems keeping up with the payments. This could happen for any number of reasons, such as a hold-up in cash flow, a loss of clients or just a quiet period for your business, but regardless of the reason it is important to take action to avoid negative consequences.

If you know you cannot afford an upcoming payment then contact your finance provider as soon as possible. If you explain your circumstances and can say when you will be able to make the payment it should avoid any missed payment letters being automatically generated and may also mean you can avoid late payment fees being added on top.

Important:

• Whatever the circumstances, contacting the company that provided the finance and keeping them informed is essential. If you fail to do so, it is only a matter of time before the vehicle is repossessed - this will hurt your company’s credit rating and leave you without a van.

Bank loans

If you took out a bank loan to buy the vehicle then the solution is relatively simple, as you can sell the van and use the money to clear some or all of the remaining loan; get a settlement figure from the finance company to know exactly how much is required to pay off the loan in one go.

Hire purchase and PCP

If you have a hire purchase or PCP agreement on your van it is a little more complicated. If you have paid 50 percent or more of the total amount owed when you first bought the vehicle (this total will be in your documentation) then you have the right to return the vehicle under voluntary termination. You can do this and owe nothing more and without damaging your credit rating, although this option may make it more difficult to obtain finance in the future. The vehicle must be in good condition for you to take advantage of this option.

If voluntary termination is not an option you should contact the company and explain that you are experiencing financial difficulties. Depending on your circumstances and how they may change in the future they may be able to help with a payment plan or even rearrange your finance with a new agreement over a longer term to reduce the monthly payment. Another alternative is to take out a loan to settle the agreement so you will own the vehicle outright; this may give you the breathing space so that you can keep your vehicle.

Your rights are against the dealer and the finance company jointly if you bought it on finance - not against the van manufacturer.

The Consumer Rights Act 2015 theoretically gives you the statutory right to reject a new or used van within the first 30 days of purchase if any fault is found. Most of the Consumer Rights Act 2015 applies to business-to-business sales, but you do not get an automatic right to a refund.

The best piece of advice we can offer is to try to settle the matter without getting legal. Once a dealer knows you know your legal rights he’s more likely to settle, as long as you are being reasonable. If the van is on finance you can take the matter up with the finance company.

Write to both the dealer principal and to the finance company and send your letter by Post Office Special Delivery so you get receipts for them and your letters become 'matters of record' which can't be denied.

Remember, taking the dealer to court should be you last resort. If both the dealer and finance company refuse to accept your rejection of the van, you can't continue to use it while taking court action against them - that means your vehicle could be sitting on your driveway for weeks and you’ll need to source a replacement until the matter is resolved.

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