Commercial Vehicle Finance Options

The main commercial vehicle finance options are hire purchase, finance lease, lease purchase and asset refinance. All four are forms of asset finance, which means the agreement is secured against the vehicle rather than being an unsecured loan, and that is why the rates are lower than general business borrowing. Which one suits depends on whether you want to own the vehicle, how much you want to pay upfront, and what your accountant wants on the balance sheet.

Most businesses come to us having already chosen the vehicle. The part they have usually not thought about is how the agreement should be put together, and that decision has more effect on the cost than people expect.

This page sets out the options, what each one actually does, and where each one earns its place.

Hire purchase

The most widely used product and the one most businesses end up on.

You pay a deposit, then fixed monthly payments over an agreed term, usually between 24 and 60 months. When the final payment is made, ownership transfers to your business and the vehicle is yours outright. There are no mileage limits and no end of term condition inspection, because you are buying the vehicle rather than borrowing it.

The tax treatment is clean. The vehicle is treated as plant and machinery, so the cost can be written off against taxable profits through capital allowances, and the interest element of the payments is deductible separately. For a VAT-registered business the VAT is paid separately and reclaimed from HMRC in the normal way.

Hire purchase suits a business that intends to keep the vehicle, wants it on the balance sheet, and would rather have a simple agreement with nothing to resolve at the end.

Finance lease

You pay monthly rentals over an agreed term and never own the vehicle. At the end it is sold to an unconnected third party and your business typically receives most of the sale proceeds, usually in the region of 95 to 98 per cent.

The feature that attracts businesses is the VAT. On a finance lease there is no upfront VAT on the vehicle. VAT is added to each monthly rental instead and reclaimed month by month, which keeps a significant sum in the business at the start. Rentals are generally deductible as a business expense, and since January 2026 leased vehicles have also qualified for a 40 per cent first year capital allowance.

Finance lease suits a business that wants the lowest initial outlay and is comfortable with the vehicle being sold at the end of the term.

Our hire purchase versus finance lease guide compares these two in detail, including a worked example of what happens when the end of term figure is set too optimistically.

Lease purchase

Lease purchase sits between the two. Fixed monthly payments over an agreed term, with ownership at the end, but structured with a balloon payment, which is a larger final sum deferred to the end of the agreement.

Moving part of the cost to the end brings the monthly payment down, which is the whole point of it. What matters is that the balloon is a real amount that becomes due. It can be settled from cash, refinanced over a further term, or covered by selling the vehicle, but it does not go away.

That makes the size of the balloon a judgement about what the vehicle will be worth years from now. Set sensibly against a vehicle that holds its value, it is a useful way to manage cash flow. Set optimistically against something that will not, it produces an unwelcome bill at the end. We set them conservatively and we will tell you when we think a balloon is the wrong idea.

Asset refinance

The one most businesses do not know exists.

If your business owns a vehicle outright with no finance outstanding on it, that vehicle is capital sitting idle. Asset refinance raises money against it while you carry on using it exactly as you do now. Typically we can raise up to around 80 per cent of the vehicle's value, depending on the vehicle and your business profile.

Because the borrowing is secured against the vehicle, it is usually considerably cheaper than an unsecured business loan for the same amount. Businesses use it for equipment, marketing, taking on staff, or covering the gap on a contract where the costs go out long before the payment comes in.

If you have a vehicle on the yard with no finance on it, tell us the make, model, year and mileage and we will tell you what it could raise.

Contract hire

Worth knowing about, though it is not something we arrange.

Contract hire is a fully maintained lease. You pay a fixed monthly amount to use the vehicle, the leasing company usually handles the servicing, and you hand it back at the end with no interest in what it is worth. It removes the administration and the residual value risk.

The trade-offs are the ones to understand. Contract hire agreements set an annual mileage allowance and charge for exceeding it, and charge again if the vehicle comes back in worse condition than expected. You are also committed for the full term, commonly three years, with no obligation on the leasing company to release you early. For a business whose work changes, or one that covers heavy mileage or uses vehicles hard, that combination can be expensive.

Comparing the four

Is this a loan?

People often search for a commercial vehicle loan, and it is worth explaining the difference, because it usually costs money to get wrong.

An unsecured business loan is lending against your business. Asset finance is lending against the vehicle. Because the lender has security in the vehicle, the risk is lower and the rate is usually lower with it. It also means the decision rests partly on the asset rather than entirely on your accounts, which is why asset finance is often available where an unsecured loan is not, particularly for newer businesses.

For most vehicle purchases, asset finance is the cheaper route. Where a business genuinely needs working capital rather than a vehicle, an unsecured facility may still be the right answer, and asset refinance is worth considering alongside it.

Early settlement, and what it does and does not save

This catches people out, so it is worth being straight about.

These are unregulated business agreements. You can request a settlement figure and pay the agreement off at any point, and there is no penalty fee for doing so. What there generally is not is an interest rebate, so settling early does not save you the interest for the remaining term.

The practical consequence is that flexibility and cost are two different things. Settling early is useful when you want to change the vehicle or release it from the agreement. It is not a way of reducing the total cost. If what you want is to pay less interest overall, the lever is the term you choose at the outset, because a shorter term means fewer years of interest.

How the rates are quoted

Commercial vehicle finance rates are quoted as annual flat rates, not APRs. APR is a consumer credit measure and it is not used on business lending.

A flat rate is applied to the original amount borrowed for each year of the agreement, so 5 per cent flat on £30,000 over three years is £1,500 of interest a year regardless of how much you have paid down. That is not directly comparable to an APR on a personal agreement, and comparing the two as though they were the same number will mislead you.

Our van finance rates page publishes indicative flat rate ranges by business profile, and our van finance calculator will give you a monthly figure in about thirty seconds.

Which one should you choose

For most businesses buying a vehicle they intend to keep, hire purchase is the straightforward answer and the one we place most often.

Finance lease earns its place where the upfront VAT would strain cash flow, or where the business would rather not have the vehicle on the balance sheet. Lease purchase is worth looking at where the monthly payment is the binding constraint and the vehicle holds its value well. Asset refinance is not really an alternative to the others at all, it is a way of releasing money from vehicles you already own, and it can sit alongside a purchase.

Your accountant will have a view on the balance sheet and tax treatment, and that view is worth having before you commit. Our job is to structure the agreement so it works for the way your business is set up, and to tell you plainly when the product you have been offered elsewhere is the wrong one.