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Finance Lease for Vans: A Complete Guide for UK Businesses

Discover how finance leasing works for vans. Flexible terms, VAT benefits and low initial outlay for VAT-registered businesses. Learn the pros and cons at Van Broker UK.

What is Finance Lease?

A Finance Lease allows your business to use a van for an agreed period while paying fixed monthly rentals. Unlike Contract Hire, you don't simply hand the vehicle back at the end. Instead, you can sell it on and keep most of the sale proceeds, or extend the agreement with a small "peppercorn" rental.

It's a popular option for VAT-registered businesses that want flexibility and lower upfront costs without committing to outright ownership.

How Finance Lease Works

  1. Choose your new or used van.

  2. Pay an initial rental (usually the equivalent of 3-9 monthly payments).

  3. Agree your term and estimated final balloon value.

  4. Make fixed monthly rentals over 2-5 years.

  5. At the end of the term:

    • Sell the van to a third party and keep most of the proceeds (after settling the residual), or

    • Extend the lease for a nominal yearly fee.

Finance Lease in a sentence:
You rent the van for business use and share in its resale value when you're done.

Key Advantages

✔ Low initial outlay - usually less upfront than Hire Purchase.
✔ Tax efficiency - VAT on rentals is reclaimable for VAT-registered businesses.
✔ Flexible end-of-term choices - sell, upgrade, or continue leasing.
✔ Off-balance-sheet potential - often treated as an operating expense.
✔ Access to newer vans without tying up capital.

Considerations

⚠️ You never own the van outright.
Ownership always remains with the finance company.
⚠️ Residual value risk.
If resale value is lower than the balloon figure, you may owe the difference.
⚠️ You handle resale logistics.
Your business is responsible for finding a buyer when selling on.

Who Finance Lease Suits Best

  • Finance Lease suits VAT-registered SMEs, contractors, and fleet operators who:

    • Prefer lower upfront costs

    • Need control of vehicle use (no mileage or condition penalties)

    • Want flexibility at the end of term

    • Regularly update or rotate their vans

Example Scenario

A courier company leases three Renault Trafics at £27,000 + VAT each.

  • Initial rental: £2,500 per vehicle

  • Term: 48 months

  • Final balloon: £8,000

  • After 4 years, the vans are sold for £9,000 each. The business keeps the £3,000 total surplus and upgrades to new models.