Guides
Van leasing explained
Two popular ways to fund a van are Hire Purchase (HP) and Finance Lease (FL). In short: HP = you own the van at the end; FL = you never take ownership(you rent it for most of its life and may continue at a nominal rent or sell on the lessor’s behalf).
Hire Purchase (HP) — ownership at the end
- Asset is intended to be owned by you once the agreement is settled (often with a small option fee).
- VAT is usually due up‑front on the purchase price; a deposit is typically required.*
- Recorded on your balance sheet: you recognise the asset and the finance liability.**
Finance Lease (FL) — no transfer of ownership
- Lessor keeps legal title; you have the right to use the van.
- VAT is paid on each rental rather than up‑front.*
- For lessees, a finance lease is capitalised (asset + liability); you record depreciation and interest.**
HP vs Finance Lease — key differences
| Topic | Hire Purchase (HP) | Finance Lease (FL) |
|---|---|---|
| Ownership | Ownership transfers to you at the end after the final payment (and any option fee). | Lessor retains legal title for the full term. You may continue renting at a nominal rent or arrange a sale on the lessor’s behalf. |
| Balance sheet | Asset and corresponding liability recognised by you; you charge depreciation and interest.** | Finance leases are capitalised by the lessee (asset + liability). You recognise depreciation and interest.** |
| Risk & rewards | Risks/rewards of ownership pass to you over the term; default can result in repossession. | You bear most risks of use (maintenance, insurance, obsolescence) although legal title stays with the lessor. |
| Duration & payments | Typically 2–5 years with fixed monthly payments. Ownership transfers on settlement. | Covers most of the useful life. End‑of‑term: continue at nominal rent or sell and share proceeds with the lessor (per agreement). |
| VAT & cash flow* | VAT typically payable up‑front on the purchase price; deposit often required — larger initial outlay. | VAT charged on each rental — spreads VAT over the term and can improve cash flow. Rentals can be reduced by setting a final (balloon) payment. |
| Mileage & resale | You own the van at the end, so resale value is yours. Higher mileage generally reduces that value. | No mileage penalty in the contract itself, but if you’re selling on the lessor’s behalf, mileage/condition will affect the sale price and any proceeds share. |
| Common use cases | Ideal when you want ownership and plan to keep the van long‑term, or customise it heavily. | Popular when ownership isn’t essential but you want lower rentals, VAT on rentals, and flexibility at the end. |
*VAT treatment varies by circumstance (e.g. your VAT status and how the van is used). Always confirm with your accountant.
**Accounting depends on your reporting framework (e.g. IFRS 16 or UK GAAP/FRS 102) and materiality. This is a general overview, not advice.
Finance Lease — worked example (illustrative)
Suppose an offer is shown at £299.50 ex‑VAT / month for 36 months at 10k miles/yearwith a 9× initial payment (typical of many medium vans like a Vito).
- Initial payment: 9 × £299.50 = £2,695.50 ex‑VAT (VAT added to this payment at the prevailing rate).
- Then 35 monthly rentals at £299.50 ex‑VAT (again, VAT added to each rental).
- No transfer of ownership at the end. Options are typically to continue at a nominal rent or sell on the lessor’s behalf and share proceeds (per agreement).
Figures are examples only and exclude fees/changes. Not a quote.
Hire Purchase — cash‑flow pattern (illustrative)
Assume a hypothetical vehicle cash price £30,000 + VAT and a 10% deposit.
- VAT up‑front: £6,000 (reclaim subject to your VAT position and use).
- Deposit: £3,000 (10% of the cash price).
- Amount financed: ~£27,000 (ignoring fees). Monthly instalments depend on term and APR.
- Ownership: transfers to you after the final payment (and any option fee).
Illustrative only; your actual deposit, APR and terms will vary.
Finance Lease with a balloon
You can lower monthly rentals by setting a final (balloon) payment due when the van is sold at the end of the term. Set the balloon sensibly — higher expected mileage usually means a lower balloon, because resale value will likely be lower.
Fair wear & tear (BVRLA guidance)
End‑of‑term inspections generally follow BVRLA fair wear & tear principles. In simple terms:
Usually acceptable
- Light, age‑related surface marks and small chips that don’t expose bare metal.
- Minor scuffs to wheel trims; tyres meeting legal tread and condition standards.
- Interior wear consistent with age and mileage; fully functioning equipment.
Usually chargeable
- Accident damage, deep dents, cracked lights or windscreens, corrosion.
- Tyres below legal tread, mismatched or damaged wheels beyond refurbishment.
- Missing keys, documents, or service history; un‑repaired warning lights or faults.
Always check your specific funder’s return standards for definitive criteria.
Choose HP if you…
- want to own the van at the end;
- expect to keep it long‑term or value modifications;
- are comfortable with the larger upfront VAT + deposit.
Choose Finance Lease if you…
- don’t need legal ownership but want full use of the van;
- prefer VAT to be paid on the rentals over time;
- want flexibility at the end (continue renting or sell on behalf of the lessor).
Frequently asked questions
Is maintenance included?
Can I change the mileage later?
Is there a mileage penalty on Finance Lease?
Who insures and maintains the van?
Can I settle early?
Talk to our team
Not sure which route suits your business? Our specialists can explain options and tailor live offers.
E‑Van Leasing is a credit broker, not a lender. Finance subject to status. Figures and examples on this page are for guidance only and do not constitute tax, accounting or financial advice. Please seek professional advice specific to your business.