Lease Purchase vs Hire Purchase
Discover the differences between two of the most popular van leasing solutions
With many finance options available when it comes to van ownership, you may be left wondering which to choose.
Here at Loads of Vans in North Cheam, South London, we proudly supply vans to keep the nation moving and can provide you with a finance plan, tailored to make your investment more affordable.
In this dedicated finance-led article, we explain the key differences between a lease purchase (LP) and hire purchase (HP) agreement, as well as the advantages and disadvantages between the two. Read on to find out more…
What are lease purchase and hire purchase?
Lease Purchase (LP) and Hire Purchase (HP) are two popular ways in which to fund a new or used van. Finance can be confusing, so to make things clearer, we’ve explained the difference between a lease purchase agreement and a hire purchase agreement:
What is Lease Purchase?
Much like hire purchase, lease purchase is a flexible finance option which allows you to pay for a new or used van over a set period of time. Working with the lender, you’ll develop a finance plan that suits you and your business.
Instead of an upfront deposit being paid to kick-start the agreement, you’ll have the option to make advance payments instead. This means your monthly repayments can be minimal, and you’ll also have the option to make a balloon payment at the end of the contract.
What is Hire Purchase?
A flexible finance option and popular amongst van owners, hire purchase allows you to decide the initial deposit amount followed by fixed monthly payments during a set period of time - be it, 12 months, 24 months, or 48 months, for example.
As referenced in the name, hire purchase means you are simply ‘hiring’ the van of your choice from the finance lender, up until you have paid off the agreed loan amount in full. Of course, the larger your initial upfront payment, the lower your monthly repayments will be.
Lease purchase vs hire purchase - compare car finance
Before you make a decision about the type of finance to apply for, you’ll want to understand the advantages and disadvantages between the two. Both lease purchase and hire purchase offer benefits to business owners, but as with any finance agreement, there are also negative elements to consider:
Lease Purchase Advantages
Hire Purchase Advantages
Consistent fixed-price low repayments
A good option if you have a lower credit score
Flexible advance payment options
No mileage restrictions on the vehicle
Allows you to afford a higher spec model
You can eventually own the van
Tax exemption benefits
You can settle the agreement early
Voluntary contract termination
Available on new and used vans
Lease Purchase Disadvantages
Hire Purchase Disadvantages
Tied into a monthly contract
Higher monthly payments
You are liable for any shortfall in the depreciation value
You only own the van once the final payment is made
You can lose the van if you fail to make repayments
Can be subject to a high interest rate
Final balloon payment may be required
You may be restricted on choice of model
You won’t own the van at the end of the agreement
You won’t be able to modify the vehicle
Can you own the van on an HP type of contract?
By entering into a hire purchase finance agreement, you can eventually own the van at the end of the contract. This means that hire purchase is often a desired financing option for those wishing to own the vehicle outright.
As with any finance-based contractual agreement, the lender is formally the owner of the van up until you have made your final repayment. It’s important to understand that should you not meet the agreed repayment terms, your van is subject to being repossessed.
Can you return a van on HP?
If you take out a hire purchase agreement, you can choose to ‘return’ the van at any time. There are two ways in which this usually works:
- Voluntary termination. This allows you to terminate your hire purchase agreement at any stage of the contract, should you wish to hand the vehicle back for any reason. However, the finance lender will only entertain this option if the total amount owed has been paid.
- Early settlement. If you wish to pay off the agreed hire purchase repayments in full, this is also an option. Any outstanding fees must be settled before your lender accepts a settlement agreement.
The opportunity to settle a contract early or terminate an agreement will vary between lenders, so always check the terms and conditions to confirm if this is definitely the case.
Can you cancel an HP agreement?
It may be possible to cancel your hire purchase agreement early if certain criteria is met, for example; if you’ve repaid at least half (50%) of the overall balance. As explained above, this is known as ‘voluntary termination’.
Is leasing or hiring a van cheaper?
Choosing whether to lease or hire a van on finance can become a complicated decision. Naturally, you’ll want to opt for the most cost-efficient option for you and your business. It’s also worth taking into account how long you intend to use the van for and its purpose, as this will also impact your decision.
If you’re not fussed about owning the van at the end of your finance agreement, then leasing a van may be the better and cheaper option for you. Because of the fixed cost terms associated with lease purchase, the monthly repayments tend to be lower. The lease period can last anywhere from a minimum of 12 months to a maximum of five years.
Do you pay more if you hire a van rather than buy it?
Buying a van outright is generally the cheaper option when it comes to owning a commercial vehicle. This is because you are paying for the entirety of the van upfront, whereas with a hire purchase plan, you are being lent the money while you pay it back over a fixed term.
However, there are many tax advantages available with hire purchase, whereby 100% of your payments can be written off against your gross profit. It's best to check with your accountant who can advise you accordingly.
Who can get lease or hire finance for a van?
Almost anyone with a good credit score and decent credit history can access lease purchase or hire purchase finance for a new or used van.
Even if you’re self-employed and working as a sole trader, you’re able to access and apply for van finance as long as you can fulfil the agreed monthly repayments. Take a look at our dedicated Van Finance for Self-Employed blog where we answer all of your sole trader finance related questions.
Do you have a poor or bad credit score and wish to apply for van finance? Then discover the options available to you by reading our Van Finance for Bad Credit blog to find out if you can still be approved.
Alternative ways to finance a van
Of course, lease purchase and hire purchase aren’t the only options when it comes to financing a new or used van. There are other popular finance options available to you, and of course you can always opt for the standard type of loans offered by high street banks too.
Business Contract Hire van finance
Contract Hire (BCH) is classed as a fixed-term contract. It allows you to effectively ‘lease’ a van of your choice by making monthly repayments as decided by the finance lender. Your monthly fee will usually include road tax, and the option for service and breakdown cover too.
Personal contract purchase van finance
Personal contract purchase (PCP) is a flexible finance plan. The monthly repayments are determined by the deposit amount you wish to put down, the chosen length of agreement, plus your predicted annual mileage. At the end of the contract, you can choose to return the van and begin a new finance plan, keep the van, or part-exchange it and upgrade to a new model.
Hire purchase and Lease purchase agreement at Loads of Vans
Entering into a car finance agreement can make all the difference when it comes to driving a new van. Here at Loads of Vans, we want to make your finance application as simple and straightforward as possible.
Our finance specialists can advise on the best van finance deals and options for you and your business; you may require a single van as a sole trader or an entire fleet of vehicles for your large commercial enterprise. Whether you want to own the van at the end of your finance agreement or wish to hand it back and upgrade to a new deal, then we’ve got you covered. Read our article on buying or leasing a vehicle to find more answers.
Take a look at our ‘Benefits of leasing a van for your business’ video below, to discover more about your finance options at Loads of Vans. We want to help make your van purchase as affordable as possible, so check out the Van Leasing Offers we have IN STOCK and AVAILABLE NOW.
Did you know that we can also arrange your van insurance too? We’ve teamed up with A-Plan insurance to offer competitive prices and exceptional claims handling - in fact, you can save up to £119 per year compared to other insurance providers.
As a well-established van dealership, we’ve been trusted by motorists in Surrey, London and beyond for many years. Discover the right van for the job by searching our fleet of vans and why not explore our New Van DEALS too and bag yourself a bargain!