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How to finance a car, van, or vehicle through your business

PUBLISHED ON: 17/12/2023

You can finance a car or a van, or indeed any commercial vehicle, through your business via a range of finance agreements, all of which provide flexibility and certainty of monthly payments.

Buying a vehicle for your business outright is expensive and it’s not advisable to use up business capital in doing so. It could leave you exposed to financial difficulties if your market declines, for example, and capital is needed to support the business.

Commercial vehicle finance agreements, by way of asset finance, offer a range of benefits, including the ability to spread the cost, so what do you need to consider in relation to commercial vehicle financing?

Some considerations when financing a business vehicle

  • Do you want to own the vehicle at the end of the finance agreement?
  • Is the type of financing affordable for your company for the whole term?
  • Have you sought advice on any tax benefits of financing your vehicle through your business?
  • Is there a mileage limit included in the contract?
  • Do you need an extended warranty or a maintenance package?

Potential financing options for commercial vehicles

Hire purchase

A hire purchase agreement fixes the monthly payments and the interest rate so you know exactly how much you’ll pay each month. If your company defaults, the financier can repossess the vehicle to recoup their money.

You have to put down an initial deposit when taking out a hire purchase agreement, which is typically around 10 per cent of the total finance. You then pay the monthly instalments as defined in the contract - hire purchase agreements generally last for up to five years.

The essence of this type of car finance is that you hire the vehicle over the term and can then become the owner if you wish. You do this by making a ‘completion payment’ after which ownership transfers to your company.

Lease agreements

A lease agreement involves a lender allowing you to use one or more vehicles in your business in return for fixed monthly payments. The contract has a defined end date after which time you have several options.

You may decide to extend the lease further, or upgrade to a better model and set up a new lease agreement. If the vehicle has served its purpose and is no longer needed, however, you can also hand it back to the lender.

Business loans

A business loan can be secured against a vehicle and provides a fixed repayment schedule. Essentially, you borrow the funds needed from the lender to buy a vehicle, and again, it may be a suitable financing option if you ultimately want to own the vehicle.

A secured business loan may mean that lower interest rates become available to you as the financier can repossess the asset if you default. Even if you can secure a low interest rate, however, it’s important to be confident that your business can pay the loan over the full term.

UK Business Finance will find the best deals for commercial vehicle financing by taking a whole-of-market approach. To find out more please contact the team today – we offer same-day consultations and work from offices around the country.

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