Commercial fleet finance options explained

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Commercial fleet finance options explained

When looking to start building a commercial vehicle fleet, or build on an existing fleet with new vehicles, it is unlikely that you'll have the excess working capital to buy vehicles outright! In most cases, businesses will be looking for some form of finance to help build their fleet.

The world of commercial vehicle finance is full of jargon and options. This guide cuts through the jargon and gives you what you need to know about financing a commercial fleet.

These are your commercial fleet finance options explained:

Contract hire and contract purchase

This is a very popular finance option. Although with a contract hire agreement, you never actually own the vehicles, the monthly instalments you pay give you control of the vehicle and can still be offset against tax. On vehicles used solely for the business, all VAT can be claimed on those vehicles.

The costs associated are calculated by taking the cost of the vehicle as new, minus the cost of the car at the end of the contract and taking depreciation into account. Contract hire often comes with mileage restrictions.

Contract purchase is similar but includes an optional “balloon payment” where you can pay to take full ownership of the vehicle at the end of the contract. Although this offers more flexibility, this option is often more expensive. Contract purchase doesn’t usually have any mileage restrictions.

Hire purchase

Hire purchase is probably your best option if you know you want to take full ownership of the vehicle at the end of the agreement. Paid in monthly instalments after an initial deposit, once you’ve paid it off, the vehicle is yours.

Your credit rating will determine the interest rates and it is worth doing your research to find the best deal.

Finance lease

It is possible to extend your agreement with a second rental period for a small annual fee. This offers more flexibility that contract hire and allows you to keep using the vehicle when the original contract has expired. If you need to use the vehicle for longer than expected this offers a good flexible option cost-effectively.

Lease purchase

Essentially the same as contract hire and finance lease, lease purchase offers the additional option to purchase the vehicle outright. The costs are again worked out by the value of the car at the start of the agreement and then the end of it, factoring the depreciation.

Combination financing

If none of the above options quite fit your requirements, it is also possible to combine these finance options to finance your fleet. It is worth speaking with commercial fleet finance experts to discuss all your options and the right route for you to take.

More on commercial vehicle finance:

> Building a commercial fleet – a guide

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