Once you've selected the ideal van for your business, the next question is how to pay for it. While you could choose to buy your vehicle outright, there are a number of advantages to hiring or leasing instead.
If you have no dramatic modifications planned for your van, hiring or leasing can offer attractive savings and other perks. You are no longer burdened with a depreciating asset, don't have to worry so much about footing the bill for repairs, and may enjoy some useful tax breaks.
Hiring or leasing? Making sense of your options
There is a bewildering array of options when it comes to financing for your van or fleet. The situation is made even more complicated by the fact that “hire” and “lease” are often used interchangeably, when they actually have distinct meanings.
In general, hiring your van means paying a defined amount on a regular basis throughout a set period. At the end of said period, you simply return the van or, depending on your specific agreement, you may have the option to purchase the van outright after a certain number of payments.
With a lease arrangement, you make a similar set payment but have a wider range of options at the end of the lease period, including resale of the vehicle or making a “balloon” payment to acquire it outright.
Factoring in vehicle condition and mileage
Remember that in some agreements, the finance provider will be taking possession of your vehicle at the end of the rental period. They will therefore expect your van to have seen a specific amount of use and mileage. Pay careful attention to the company's stipulations with regard to “Fair wear and tear” when you enter into an agreement, as damage or excessive mileage could prove costly. Vehicle condition is also an important consideration if the van's sale price will be used to offset your final payment.
Think about the kind of distances you're likely to cover during the rental period and the kinds of conditions your vehicle will be subjected to. If you expect to make many long trips, or need the van to take a certain amount of punishment, avoid agreements that require limited mileage or a pristine vehicle. A driver making short delivery runs along well-maintained city streets and highways probably needn't worry too much, but if you expect to travel between opposite ends of the country or traverse construction sites full of potholes, you should opt for a deal where the vehicle's condition is less of an issue.
Business contract hire agreements
Contract hire is a form of leasing. It is different from short-term vehicle rentals, where you hire a car or van for a few days and return it. In a contract hire agreement, you will usually be signing up for between two and five years. The exact length of the arrangement will depend on a number of different factors. Mileage is predetermined under this kind of agreement.
One major benefit of contract hire is that it frees up capital and reduces your administrative load. Because you are not paying a large sum to buy your van outright, your business has access to money that would otherwise be tied up in a vehicle. A contract hire agreement means you have a smaller initial outlay – up to a year of monthly instalments – and a modest monthly payment. This guaranteed fixed cost makes budgeting easier. Contract hire providers offer a range of different payment options with plenty of flexibility, so you’re likely to find something that suits your business. With a Renault Contract Hire, for instance, the advanced rental payment can range from three to 12 months upfront.
Besides low initial payments and a fixed monthly cost, advantages of business contract hire include:
- Optional maintenance and servicing packages, which consolidate all your running costs and reduce your administrative load.
- Being able to reclaim VAT on vehicle payments (100% of the amount if the vehicle is used exclusively for business, and 50% if it is used privately).
At the end of a of a business contract hire agreement, you simply return the vehicle back to the financer – typically for sale to a third party.
Business finance lease agreements
Business finance lease agreements are similar to business contract hire agreements, but allow you to further reduce your monthly payments by agreeing to a final rental payment after the end of the contract, known as a “balloon” payment. You still can't own the van but once you've completed the contract you can continue renting the van at a greatly reduced rate.
With a Renault Finance Lease , you may pay a fee (usually equivalent to a one-month rental) to continue using the vehicle for the whole of the following year. You also enjoy two other options:
- Selling the vehicle on Renault’s behalf, and receive a share of the proceeds (assuming no balance is owed).
- Returning the vehicle and reclaiming your share of the balance of proceeds, including any sell-on expenses.
Such an agreement frees up cash flow and gives you extra flexibility, notably by doing away with mileage restriction. You also won’t be alone in making your choices: at Renault, the process starts with you telling us how much deposit you would like to pay, and your salesperson will help you determine the best payment schedule for you.
Business contract purchase agreements
If you like the idea of lower initial costs and easy-to-manage monthly payments but still want to own the vehicle outright, a business contract purchase agreement may be the solution.
In a business contract purchase arrangement, you are basically buying the van but spreading the cost over a longer period. When buying a vehicle outright with conventional financing, you may be required to pay a large deposit at the beginning; a contract purchase agreement tends to come with a lower initial payment.
Once you've reached the end of the agreement, you may typically do one of the following:
- Return the vehicle to the provider, assuming it is in good condition and the mileage is within stipulated limits.
- Part exchange the vehicle, with any equity going towards the deposit on your next van.
- Own the van outright, usually by making a final payment (also called an Option to Purchase Fee) that covers the difference between the vehicle's value and the amount paid so far.
There are certain drawbacks to this kind of agreement – for one thing, and the cost of your van will appear as a negative on your balance sheet until the vehicle is paid off. However, a Renault Hire Purchase agreement is still a cost-effective way to acquire a new van, especially given the flexibility involved regarding initial payment and payment terms. What’s more, fixed repayments are not subject to VAT.
Business lease purchase agreements
These are very similar to business contract purchase agreements. You are able to retain ownership of the vehicle and get the same tax benefits. As with business contract purchase agreements, you will have to pay the full value of the vehicle – there's no option to return it to the finance company once the contract is finished. However, you can defer part of the costs to a final balloon payment at the end of the agreement, resulting in lower monthly payments.
A Renault Lease Purchase agreement can be a great option for you if you would like to benefit from lower monthly payments and end up owning your van outright. This way you won't have to worry unduly about the mileage or condition of the van, making this a good option in situations where you expect to do a lot of driving and may subject your vehicle to more than the usual wear and tear.
Keep in mind that your vehicle may be at risk if you can't keep up the payments. There are often penalties for breaking your financial agreement; not only that, but you might find yourself without transport. Make sure you can afford the monthly cost and select a deal that's within your operating budget. This is another area where Renault teams will be happy to help.