Finance Options for Commercial Vehicles

Business owners requiring a vehicle or a fleet of vehicles have many options at their disposal when attending to their business transportation needs. Commercial vehicle owners have one major advantage over private vehicle owners: the purchase price of the vehicle can be offset against its future earning potential, and so there are additional options for financing available to fleet operators.

Hire Purchase

In common with private vehicles, normal hire purchase schemes are available for commercial operators. This is where the initial purchase cost is spread over an agreed period of time, with fixed repayment amounts and added interest at a fixed APR.


There is usually a relatively low deposit amount to pay at the beginning of the hire purchase agreement, with the initial amount determining the cost and length of monthly repayments. The advantage to this scheme lies in the fact that ownership of the vehicle will transfer to the owner at the end of the agreement. Hire purchase involves minimal start-up costs, so the vehicle will start earning without significant capital needing to be taken from the business.


Contract Hire

Contract hire also involves paying a monthly fee: However, the difference between contract hire and hire purchase means that the hirer will never own the vehicle, which needs to be returned at the end of the agreement. The monthly payment is calculated as the difference between the initial purchase cost and the residual value of the vehicle following depreciation, meaning low monthly payments.


Many of these schemes also cover vehicle maintenance and road excise duty, making this ideal for those who wish to avoid maintenance and administration issues. Contract hire is ideal for large operators who wish to be able to upgrade their fleet regularly without the issue of selling the old vehicles.


Contract hire has significant tax advantages, and VAT-registered customers can claim up to 100 per cent of the VAT on repayments if the vehicle is used purely for business or 50 per cent if there is an element of personal use. One disadvantage to contract hire is the fact that there is usually a mileage limitation, so this is less suitable for high-mileage operators.


Finance Leasing

Finance leasing provides a bridge between hire purchase and contract hire: The operator can either pay the entire cost of the vehicle or benefit from lower monthly repayments, with a final repayment covering the residual cost of the vehicle. Whilst the operator never owns the vehicle, they may continue to operate the vehicle for a peppercorn sum at the end of the agreement.


There will be restrictions on how the vehicle is used, but provided these remain the same, the repayment amount will be fixed throughout the agreement. All payments will be tax-deductible, so this scheme is also advantageous for VAT-registered businesses.

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