Choosing the right finance structure for your van can save thousands over the life of the agreement. The three main options - Hire Purchase (HP), Finance Lease and Contract Hire - suit different business types, tax positions and vehicle replacement strategies. This guide explains each structure and shows worked examples using a £35,000 Ford Transit.
The Three Structures Explained
Hire Purchase (HP)
You pay a deposit (typically 10–20%), then fixed monthly payments over an agreed term. At the end of the agreement, you pay a small option-to-purchase fee and own the van outright. The van appears on your balance sheet as an asset from day one, and you can claim capital allowances against tax. HP is the most common structure for sole traders and owner-operators who intend to keep the van long-term.
Finance Lease
Similar monthly payments to HP, but you never own the van. At the end of the term you either return it, extend the lease or sell it (with the majority of the sale proceeds returned to you). The van remains off your balance sheet (depending on accounting treatment), and lease payments are fully tax-deductible as a business expense. Finance Lease suits businesses that want asset use without ownership.
Contract Hire
You lease the van for a fixed period and mileage, return it at the end, and have no residual value risk or balloon payment. Monthly costs are often the lowest, but you build no equity in the asset. Contract Hire includes a maintenance option (tyres, servicing) which simplifies fleet management. Best suited to businesses with predictable mileage and a consistent renewal cycle.
Worked Example - £35,000 Ford Transit (5-year term)
| Structure | Deposit | Monthly payment | Total paid | Asset ownership | Tax treatment |
|---|---|---|---|---|---|
| Hire Purchase (7% APR) | £3,500 (10%) | £619/mo | £40,640 | Yes - at end | Capital allowances |
| Finance Lease (7% APR) | £3,500 (10%) | £540/mo | £35,900 + balloon | No (can sell) | Lease payments deductible |
| Contract Hire | 3 months upfront | £480/mo | £31,500 total | No | Monthly cost deductible |
Representative example. Actual payments depend on rate, deposit and residual value assumptions.
Which Structure is Right for Your Business?
Choose HP if:
You want to own the van at the end, you run the vehicle hard (high mileage with no penalty risk), or you are a sole trader who benefits from capital allowance claims. HP is also preferred where you want to modify the vehicle, as you own it from the start.
Choose Finance Lease if:
You are a VAT-registered business that wants to reclaim VAT on payments, you prefer off-balance-sheet treatment, or you want the flexibility to sell the asset mid-term. Finance Lease is common in refrigerated van fleets where residual values are more predictable.
Choose Contract Hire if:
You want the lowest monthly cost, you replace vans on a fixed cycle (3–4 years), your mileage is predictable, and you do not want to manage disposal. Adding a maintenance package simplifies total cost of ownership for multi-van operators.