Trucks and vans are expensive, whether new or used, but there are various ways of financing a vehicle. Many truck manufacturers, truck dealers, finance houses and banks offer deals.
The first and most obvious is to purchase your truck outright with cash. Some owner-drivers even borrow start-up money from relatives to buy a truck outright. This will always be a personal decision, but remember that road transport is a risky and challenging business and this route may risk both the cash and your relationship.
Outright cash purchase can cause serious cash flow problems for road transport operators, which require great liquidity – both to satisfy the standing cash requirement of their operator licence and to purchase fuel.
It can be more commercially sound to rent or hire a vehicle, or to buy it with an extended purchase scheme. You will need to produce a valid operator’s licence in order to hire or purchase a truck with credit.
Types of truck acquisition:
- Hire purchase. You pay a deposit and VAT, followed by a fixed monthly repayment including interest until the amount is paid. The truck is then yours.
- Contract purchase. This is like hire purchase but you can either return the truck at the end of the contract or pay the agreed residual value.
- Renting. Spot-hire is expensive and it can be difficult to get exactly the vehicle you require at the right time. Most operators will choose to spot-hire a vehicle in an emergency.
- Finance lease. The finance provider buys the asset and leases it to you for a fixed term at fixed monthly payments, usually with an initial ‘start-up’ payment. At the end of the lease you can renew it or have the truck sold to an independent third party. On sale you will receive a percentage of the price as a rental rebate. This can get you the truck you want without ever having to pay out the full amount.
- Operating lease. Usually applied to high-value items, the company takes residual value into account and lowers rentals accordingly. You make lower repayments but get no money back at the end.
- Contract hire. This is extremely popular with road transport operators because – in theory – it does not just get you a truck but a legally compliant truck. The whole life costs of the vehicle are rolled up and divided into single monthly payments for the agreed term. The contract-hire provider then takes responsibility for such things as servicing, maintenance, tyres, administration, vehicle taxation and documentation. It will not cover driver licence acquisition, insurance or fuel.
Points to remember
- However you come by your vehicle you are always legally responsible for ensuring its roadworthiness, tax status etc.
- If your truck is impounded for running without licensing authorisation, your finance company may be able to claim its return as the legal owner – but you will not get it back.
- Choose carefully. Cash flow is the lifeblood of business. Do not splash all your money on a new truck when leasing or buying second-hand may do the job just as well.
- If you own trucks but need cash, a sale and leaseback scheme may free up some of the equity you hold.
- Tax laws generally allow you to claim the full amount against profits for leasing and hiring equipment. However you can only claim percentages of cost on capital allowances each year if you own the vehicle – eg through hire purchase or buying outright.
- Your consumer rights still entitle you to a fault-free product fit for purpose however you choose to buy.
- ‘Interest-free’ periods, more common in consumer than business agreements, are only truly interest-free if you pay the money owed back within the interest-free term. Otherwise all interest from the point of purchase will usually be owing.
- Vehicles being returned must be in good condition. Equally the repairs demanded under a contract-hire agreement must be ‘reasonable’.
CV finance companies:
Truck manufacturers including Volvo, Mercedes-Benz, Scania, Isuzu, MAN, Iveco and DAF (under Paccar financial products) all have a range of finance options. The Road Haulage Association (RHA) offers a special member deal through the Bank of Scotland. Other firms specialising in commercial vehicle finance include:
Companies that have emerged from the rental sector to offer finance and contract-hire deals include:
You may find it useful to use a truck finance broker such as Lease Finance to get the best deal – but remember, you will pay a premium to cover their fee.
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