Although it is perfectly possible to operate as a self-employed van driver in the gig economy without owning a vehicle, the chances are that it will be a more viable business in the longer term if you purchase one. Many drivers hire a van for their work, sometimes on a week-by-week basis or even on daily terms. However, this means that they will then have to work at an operating loss until they have conducted enough deliveries to reach their break-even point. In the end, even with the price of second-hand vans being at a historic high, owning your own vehicle is likely to be a more profitable way of earning a living.
It is not just multi-drop delivery drivers who are more than likely to be better off owning their own van either. Anyone who operates a man and van service or who works in a trade that requires a van to get tools and so on to site will be in the same boat. In early February 2022, the Bank of England raised interest rates in the UK to 0.5 per cent. That’s still very low, of course, meaning that credit is affordable to many. However, with inflation looking to be sustained in the global economy, few would bet against a further hike at some point down the line. What this means for anyone borrowing is that the cost of servicing their debt is likely to go up at some point.
Consequently, the way you arrange finance for a van you want to drive will be important. The good news is that there are plenty of different financing options these days. What are the main ways you can finance a van whether you are opting for a used model or a brand new one? Read on to find out.
Purchasing Outright
To begin with, we should consider that the most straightforward way of buying a van is to do just that and to purchase it outright. What this will mean is having a sufficiently large sum saved already, of course. Not everyone will be able to do this but there are some significant upsides to saving for a van purchase as opposed to borrowing or leasing. The first is that when you pay for a van outright you will take possession of it as an asset in full. Depending on your tax status as a trader, you should be able to deduct the capital value of your van from the tax you will need to pay over several years depending on how much you depreciate it by. Any good accountant will be able to help you in this regard.
The next most important thing to say about outright purchases without finance is that you can always sell your van to liquidise your asset. In other words, so long as you can find a buyer, your working capital need not be tied up forever. Thirdly, outright purchases mean that you will have no form of debt to service so you will be free from interest charges and any potential upturn in them.
Third-Party Borrowing
Given that most owner-drivers will not have thousands of pounds in savings they can dip into to buy a van outright, borrowing is likely to be the next option they look into. Borrowing for a vehicle purchase can come in many forms. A personal loan from a bank or another reputable high street lender is one way of proceeding. There are other options, however. When applying for a loan, it is always a good idea to look at the APR. This is the indicative amount of interest a borrower can expect to pay. However, if you have a poor credit history, you’ll represent a larger risk to the lender so the interest charged can be higher. Avoid payday loans wherever possible since these are often charged at higher interest rates than other sorts of loans.
Many reputable firms offer vehicle loans nowadays, so avoid using credit cards and other forms of consumer credit. If you are buying from a van dealer, then they may have a preferred financing firm. However, you don’t have to sign up with them. It is better to shop around for a deal that suits you instead. Only ever consider borrowing from a firm that is regulated by the Financial Conduct Authority (FCA) in the UK.
Leasing
For many drivers who use their vehicle to earn their living, leasing is a very practical way of getting on the road. With a lease, you can make affordable payments in instalments, a little bit like paying off a loan. The major difference with a lease, as opposed to a loan, is that you will not own the van you are driving. The finance company – or lessor – will actually own your van. When you sign up for a lease deal, the lessor will pay the seller for it in full and be its legal owner. You will simply be the van’s registered keeper with the DVLA. However, with a lease, you can drive the van and use it for whatever commercial purpose you want to put it to.
Some leases, especially those which are marketed as personal contract hire (PCH) agreements, will require an initial deposit but some will not. Typically, leases run over three, five or seven years but you can find other options on offer, too. At the end of a lease, the vehicle must be returned to the lessor and they will then inspect it to make sure that it is in a good working state. Some lessors issue penalties for things like bodywork damage and so on, so you should factor this in. Nevertheless, leases are popular among owner drivers who want to know exactly how much they’ll need to budget for each month to keep their business going. In some cases, leasing companies will offer the van for sale to the person who was leasing it from them when the lease term ends. This can be attractive but lessors are under no obligation to operate this way.
Hire Purchase
Hire purchase is used for all sorts of things, not just commercial vehicles. Often referred to simply as HP, a hire purchase deal will be on offer from van dealers. In other words, it is not the sort of thing you will be able to obtain from a private seller. With any HP arrangement, you will have to pay a deposit upfront for the van you want to buy. How much this initial payment will be will depend on the offer being made but, generally speaking, HP arrangements tend to require a larger sum to be paid upfront than leases.
The next part of an HP deal will mean paying off the remaining sum for the van over the course of an agreed term. Usually, the balance is paid off in equal monthly instalments. There will be interest charges that apply to the sum you are paying off, of course. These can change if the Bank of England alters its base rate, however. With many HP deals, when you have paid off all of the monthly instalments, there is a further ‘option to purchase’ fee that will be levied. Make sure you know how much this will be before opting for an HP deal. Once this has been paid, the van will be yours and the financial agreement will be at an end. You can then sell the van or continue to drive it as you see fit.
Personal Contract Purchase
Personal Contract Purchase (PCP) finance is becoming increasingly popular in the UK. Many motorists now finance their family cars with PCP but the system works just as well for self-drivers of commercial vehicles. Like a lease, taking out a PCP will mean that you do not become the legal owner of the van – the financing company will have title to it. That said, the idea is that the majority of people who take up a PCP will end up owning their vehicle at the end of the arrangement. Drivers are responsible for fuel, replacing tyres and other things that might wear out, such as wiper blades under a PCP.
Please note that with this sort of financing agreement, you will have to pay an initial deposit. This will then be followed by a series of monthly instalments, much like a hire purchase. However, the big difference with a PCP is that these monthly payments are likely to be much lower, helping drivers who want to keep their overheads low while they use their van to earn a living. The idea is that you will only be paying for how much the van is dropping in value as it is driven around. For this reason, PCPs usually have an agreed amount of mileage you can drive before penalties kick in. At the end of the agreement, a significant amount will need to be paid for you to take ownership of the van. This should reflect its current market value at that point. Interestingly, drivers can either choose to pay that final amount to take ownership of the van or just hand it back.