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Lifestyle Guides

Buying or leasing your new van – which is best?

There’s lots of discussion around leasing new vehicles right now, but which is best – buying outright (with or without finance) or leasing? 

fleet of white vans

There’s no simple answer, and ultimately your decision needs to be based on your own personal circumstances, but let’s take a look at some pros and cons for each. 

For the purposes of this feature, we’ll take leasing as meaning Contract Hire (there are some other finance products that also include the term lease in the title).

Flexibility

Lease: When leasing you’ll have to decide how long you’ll want the agreement for, and stipulate the mileage you think you’ll cover. There’s sometimes an option to extend the lease but generally speaking the van will be returned to the finance company at the end of the period and you’ll need to start from scratch again and buy or lease a new vehicle.

After commencing a lease, if your circumstances change and you decide that you no longer need the van, or perhaps can no longer afford the rentals then the finance company will require a financial settlement, as the depreciation is calculated equally across the agreement term. Typically, this charge can be 50% of the outstanding rentals.

Buy: You decide when next to change and you don’t need to forecast your mileage. You may be tempted to run the vehicle for longer but this risks additional maintenance costs, MOT failures to deal with and you won’t benefit from the latest technology you’d get on a new vehicle.

If you’ve financed the van under a conventional, regulated hire purchase agreement and you decide to dispose of it prior to the loan being repaid, you may in certain circumstances be able to opt for a ‘voluntary termination’ whereby you would only be liable for a total 50% of the total amount payable (including interest and charges). Otherwise, you will need to settle any outstanding finance prior to or at the point of disposal. 

VAT

Lease: For those who are VAT registered, the VAT payable on the initial and monthly rentals should be reclaimable, providing the van is being used for business purposes (always check with your accountant).

Buy: If you’re buying outright, you’ll need to pay all the VAT up front, and, if reclaimable, wait until your next VAT return to recover it. Often, this also applies on a finance agreement where all the VAT may be required along with any deposit.

Depreciation

Lease: Your lease ‘rentals’ (that’s what they essentially are) are mostly the cost of the forecast depreciation over the term, and the lease company hope to achieve at least a predicted sale value when the van goes to auction. The benefit of this is that you’ll have a good idea from the outset what the ‘whole life cost’ of the van will be. If the value of used vehicles subsequently falls, it’s not your problem, but if they rise, you’ll get no rebate.

Buy: The risk is yours, but you’ll benefit if used values rocket (as they have in recent months). Read more in our guide to reducing van depreciation.

Bumps and scrapes

It’s a fact of life – a working commercial vehicle is likely to get a few dings and scratches along the way. Here’s where things get tricky.

Lease: When the lease company set their forecast ‘residual value’ (ie, what they expect the van to resell for) they assume the vehicle will be returned to them in good condition. When it’s collected from the customer, the van is closely examined and if there’s any damage over and above their guidelines, you’ll receive a bill for repair. This could be quite considerable, often non-negotiable and difficult to budget for.

Buy: It’s easy to say ‘I’m not bothered about that scuffed alloy wheel or scraped wheel arch’ but, when you come to dispose of the van it’s likely to devalue it to either a private buyer or a dealer when part exchanging. 

So, you’ll pay for it one way or the other, although you’ll be able to make the decision as to what, if anything you want to get fixed prior to sale and you’ll also be able to shop around for quotes.

Mileage

Lease: Many who are tempted by the convenience of leasing a new van stumble a little when having to declare forecast mileage. If you’re taking out a four year lease who knows how things may alter in the future – business needs change, and who could have predicted the reduced mileage driven during the pandemic? 

If, at the end of the contract, you’ve exceeded the mileage the agreement is based on, you’ll be billed on a ‘pence per mile’ basis. It’s a one way thing unfortunately as you’ll get nothing back if you cover fewer miles, and it’s a bonus for the lease company.

Buy: No mileage restrictions at all, although obviously your van will be worth less the more distance it has covered prior to disposal.

Disposal

Lease: Except for any potential post-contract charges for damage or excess mileage here’s where leasing is a clear winner. On an agreed date the vehicle is collected and driven away – end of story.

Buy: Part exchange with the haggling that that may involve? Sell privately with the risk of time wasters and buyers who (with no legal grounds) may complain after purchase? Use a ‘car buying’ service who are likely to offer less than market value? Getting rid of your old van is often a process that people dread, and sometimes with good reason. Give yourself the best chance possible of getting a good deal with our guide to selling your van

Equity

Lease: Customers sometimes shy away from leasing as they consider it ‘money down the drain’. While they have no equity at the end of the lease period, it’s not necessarily wasted money as the rentals roughly equate to the depreciation you’d pay if you bought the van. 

The lack of any equity at the end can make some feel trapped into a cycle of leasing as the low deposit (or initial rental) is usually more affordable than a loan deposit.

Buy: The equity in a used van (after any outstanding finance has been settled) will often form a substantial deposit towards a new van, reducing the monthly payments. If the owner then decides to lease a replacement vehicle, they’ll usually need to dispose of the van and can use the proceeds to fund the initial rental required.

I started my career selling vans in the mid-eighties, progressing through dealer groups to management level. In 2010 I joined vehicle valuation company CAP, being made responsible for forecasting future used values for all makes and models of vans and trucks, this data being used by leasing companies and manufacturers to assess future risk. This role entailed very early exposure to new models including extensive testing across Europe.

In 2016 I started up my own consultancy business dedicated to the LCV industry. In addition, my freelance written work has been used by a number of clients and I am a regular contributor to WhatVan? magazine. I’m also a judge for their annual ‘Van of the Year’ awards.

To relax, I enjoy travel, walking near my Yorkshire home and spend much of my time being bullied by my pet cat, Leo.

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