A no-deposit commercial vehicle lease could be the best thing for your new business
'No-deposit leasing' is one of the most-Googled phrases. Vanarama’s Tom Roberts explains how no-deposit leases work and the benefits for business
For a new business or sole trader, leasing a commercial vehicle – be it a pick-up truck, van, or specialist vehicle – is an incredibly astute way to drive a brand-new motor without having to invest the full up-front cost of the purchase price and deplete your savings.
The money you save is kept free for investment in your business, and the regular payments represent an easy-to-manage monthly expense that you can budget for.
Commercial vehicle leasing explained
In the main, a leasing agreement for a new commercial vehicle usually starts with a deposit – the higher the deposit, the less your monthly rentals will be.
But, while it’s certainly a far lower price to pay than the full cost of a brand-new vehicle, a deposit is still a sum of money that needs to be paid before you get your new vehicle.
When setting up a new business every penny counts and so if you want to keep even more pennies free then a no-deposit lease might be the perfect way to do this.
Flexible finance options are in high demand in the commercial vehicle leasing industry which means it’s only natural that you might look at the up-front deposit as a barrier to ‘signing on the dotted line’.
Leasing products for commercial vehicles
Business and Personal Contract Hire: The vehicle is hired for a set period of time and pre-determined mileage, at fixed monthly rentals. You never own the vehicle, so at contract end the finance company will collect it. A low initial deposit and low monthly rentals are paid as part of the agreements which often span between 24 and 60 months.
Business and Personal Contract Purchase: Choose the car, deposit, contract length and the mileage. At contract end you can either buy the car outright for an agreed lump sum (the minimum guaranteed future value), part exchange the car and use built-up equity as the deposit on a new car, or hand the vehicle back to the lender. Deposits and monthly payments are usually very low.
Business Finance Lease: The vehicle is hired for a fixed monthly rental with a final rental (called a ‘balloon’) covering the estimated residual value of the vehicle at contract end. You are responsible for disposing of the vehicle at contract end.
Business Lease Purchase: The vehicle is leased for a fixed monthly payment with the option to purchase at agreement end. It requires a deposit, usually equivalent to 3 monthly payments, and a final payment (typically equivalent to the residual value of the vehicle at contract end).
Why does a deposit matter?
The choice between putting down a deposit and putting down no deposit on a new commercial vehicle is about choosing to make your monthly payments lower or higher – just like you would with a mortgage on a house.
However, that’s not to say that putting down no deposit will significantly raise your monthly payments either.
Take a look at these example costs based on a Business Contract Hire lease on a brand-new Ford Transit Custom 270 L1 Fwd 2.0 TDCi medium van:
|WITH DEPOSIT||NO DEPOSIT|
|CONTRACT LENGTH||36 months||36 months|
|INITIAL DEPOSIT||£1,301.46 (first payment)||£0|
|MONTHLY RENTAL PRICE||£216.91 excl VAT (x35)||£246.86 excl VAT (x36)|
As you can see, the initial deposit of over £1,300 (equivalent to siz months of rentals) does bring the monthly rentals down, but choosing to go with a no-deposit lease only raises the price by around £30 per month.
Ultimately a lease deal can be as affordable as you want it to be, but a no-deposit lease means you can drive a brand-new medium van without having to invest a further £1,300 at the start, and still keep the monthly rentals affordable.
How you choose to finance a vehicle is up to you but be sure to ask yourself these few very simple questions before you consider leasing a commercial vehicle for your new business:
- How much can I afford to pay as a deposit?
- Can I afford the monthly rentals?
- Have I estimated my mileage correctly?
- How well will I look after the vehicle?
- How long do I want to keep the vehicle for?
If you know the answers to these questions, you’re good to go.
If you’re not sure then don’t hesitate to ask leasing companies questions; make sure you’re happy with their answers and that you feel in control of all the facts.
No-deposit leases will raise your monthly payments, but not by as much as you’d think.
As long as you can budget for a slight increase, you’ve just made commercial leasing even more affordable for your business.
Tom Roberts is content editor at Vanarama, the UK’s leading commercial vehicle leasing broker.