Buying a car on finance for your business has many great perks that could help your business grow. It provides the opportunity to afford a car - or cars, depending on how many employees require a vehicle - without having to pay outright with cash.
For example, you could finance a vehicle to deliver orders to online customers if you run a florist business. It could help increase profits while only spending an agreed, fixed monthly sum on finance.
If you require multiple vehicles, finance is the best - and the cheapest - option to allow you to do that. Buying multiple cars for employees outright could cost hundreds of thousands of pounds and does not make business sense.
Do you already have a vehicle on finance? Discover if you could be eligible to get into something new or switch to a better deal.
Many businesses need vehicles, whether for salespeople to get around the country or a cleaning firm to move their equipment from job to job; a company vehicle gives you the opportunity and flexibility to achieve more.
In this article, we'll look at how vehicle finance works and all the information you need to know to make an informed decision on the right move for your business.
How does vehicle finance work?
There are plenty of available options for financing business vehicles, and it's worth the research to ensure you find the right one to suit your business's needs and goals.
You could take out a business loan, meaning that you own the vehicle outright from the get-go, and can utilise it as and how you need it. You would need to qualify for the full amount and maintain your monthly payments or risk having the loan taken away and the vehicle seized.
Another option is asset finance. This loan type provides the funds to purchase the vehicle outright, acting as a security for the loan.
Buying a vehicle outright costs a lot of money and may not be worth the costs that come with it. Some businesses may not qualify for this loan type, and the repayments would likely be too high.
Contract hire is like leasing the vehicle and includes servicing and maintenance within the plan. However, contract hire is only available to partnerships, sole proprietors, and limited companies.
Contract purchase is a similar concept, but you can own the vehicle outright at the end of the agreement - like Personal Contract Purchase (PCP). finance.
You would be required to make the agreed fixed monthly payments before having the option to make a final balloon payment to own the vehicle outright. If you choose not to, you hand the vehicle back to the lender and walk away.
Business car hire purchase finance involves financing the whole cost of the vehicle via monthly payments or agreeing to a balloon payment at the end of the deal. The vehicle is the lender's and sold at the end of the term.
A lease purchase is similar to a contract purchase but does not include any servicing or maintenance as part of the deal. As soon as the lease purchase begins, the business owns the vehicle.
At the end of the term, the business must pay the final balloon payment and purchase the vehicle. This type of finance has various VAT benefits, so could be a smart option to save money if you're a VAT-registered company.
What are the costs of vehicle finance?
The costs of financing a business vehicle are dependent on the type of finance you opt for. A business loan or asset finance will result in you having regular loan repayments.
Your credit history and score will come into play to determine the level of interest rate you must pay, including the amount borrowed and the length of the term. On the other hand, lease finance agreements charge interest on the amount you are borrowing.
You may have to declare how many miles you expect to drive in a year to avoid incurring mileage fees at the end of the term. You could include service and maintenance as part of your deal, which could save you from paying hefty one-off fees every year.
How long does it take to get vehicle finance?
If you make an application and are an established company with a good credit history and business plan, you could be approved within a few hours.
It could take a couple of weeks for the vehicle you want to be in stock and delivered, though, so you should take into account that you may be without the vehicle for some time.
What type of security do I need for vehicle finance?
You may not need security if you borrow a small amount - typically below £25,000. However, if you're borrowing more than that, you will need to offer security - this acts as a guarantor on your loan in case you are unable to make repayments.
For example, you could put down a property, a vehicle, or shares, as security, and if you are unable to make your repayments, your security could be seized. If you take out asset finance, that will be secured against the vehicles it finances.
Lease finance requires you to put down a deposit, followed by an agreed length of fixed monthly payments. Your vehicle is the security if you fail to make repayments, and the lender could seize it.