What is a business vehicle loan?
If your business needs a car, van, or fleet of vehicles to operate, a business vehicle loan can help you access the funding to make that purchase possible.
This type of finance is specifically designed for businesses looking to acquire vehicles without paying the full cost upfront.
They allow you to spread the cost over time, which means you can invest in vehicles while avoiding large upfront costs and maintaining healthy cash flow.
What can you use a commercial vehicle loan for?
A business car loan gives your business the flexibility to finance a range of vehicles you might need for day-to-day operations, logistics or growth.
Whether you are expanding your fleet or replacing an old work vehicle, this type of finance can be used for:
- Company cars: For sales teams, directors, or employees who need vehicles for day-to-day business activities.
- Vans and light commercial vehicles (LCVs): Van finance is ideal for tradespeople, delivery services, or businesses transporting goods locally.
- Heavy goods vehicles (HGVs): Suitable for logistics, haulage, and construction businesses.
- Fleet expansion: To purchase multiple vehicles at once, helping your business scale its operations efficiently.
- Specialist vehicles: These may include taxis, minibuses, agricultural vehicles, and any commercial vehicles designed for specific business use.
- Electric and hybrid vehicles: For businesses looking to reduce their carbon footprint while benefiting from potential tax incentives.
A commercial vehicle loan can be tailored to suit various business needs, helping you access the right vehicles without impacting your cash flow.
What business vehicle finance is available?
Several different vehicle financing options are available. The best choice for your business will depend on how you want to structure repayments, whether you prefer to own or lease the vehicle, and your financial profile.
Here are the main types of business vehicle finance:
Business loans
A business loan offers a flexible way to finance a vehicle purchase. You receive a lump sum, which you can use to buy business vehicles upfront and repay the loan over time.
There are two main options available: secured and unsecured loans.
- Secured business loans: These are backed by collateral, like business assets or the vehicle itself. They often come with lower interest rates and higher borrowing limits, but may carry more risk if you miss repayments.
- Unsecured business loans: These do not require physical assets as security. While interest rates may be slightly higher, unsecured loans can offer faster access to funds and less risk to business assets.
Asset finance
Asset finance is a popular option for businesses looking to spread the cost of vehicles over a fixed term without tying up large amounts of working capital.
There are several different types of asset finance products you can choose from. The right option will depend on whether you want to own or lease the vehicle you need. Common forms of asset finance for vehicles include:
- Hire purchase (HP): HP allows your business to pay a small initial deposit followed by monthly instalments. Once all payments have been made, you take ownership of the vehicle.
- Finance lease: Your business leases the vehicle for a set period, paying a monthly rental amount. At the end of the term, you can buy the vehicle at an agreed price or extend the term and continue the lease.
- Operating lease: This is similar to a finance lease but typically has a shorter term and lower monthly payments. You’ll never own the vehicle, and you hand it back at the end of the agreement.
Commercial contract hire
Commercial contract hire works like a long-term rental agreement. It allows your business to lease a vehicle for an agreed-upon period, usually between 2 and 5 years.
You make fixed monthly payments based on the expected value of the vehicle when the term ends and the agreed mileage limit. At the end of the contract, you return the vehicle and are not obligated to buy it.
Commercial contract hire offers predictable monthly costs, often includes maintenance and servicing, and removes the risks of depreciation.
However, you need to be aware of mileage limits, charges for damage above normal wear and tear, and the fact that ownership of the vehicle is never transferred.
What are the pros and cons of commercial vehicle loans?
Commercial car finance can be a smart way to acquire vehicles without large upfront costs. However, like any form of finance, there are both benefits and drawbacks to consider:
Pros
- Protects your cash flow: Spreading the cost over time helps keep working capital free for other business needs.
- Tax benefits: Interest payments and vehicle depreciation may be tax-deductible, depending on your chosen finance option.
- Flexible terms: A range of repayment options and loan types allows you to tailor the finance to your business needs.
- Asset ownership: Some finance options, such as hire purchase or secured loans, mean your business will own the vehicle at the end of the term.
Cons
- Long-term commitment: Monthly repayments can stretch over several years, which may impact your business’s financial flexibility.
- Risk of asset loss: With secured loans or hire purchase agreements, missed payments could result in the repossession of the vehicle.
- Interest costs: Over time, you may pay more than the vehicle’s original value due to interest charges.
- Depreciation: The vehicle may lose value faster than the remaining loan balance, especially with high-mileage use.
Understanding the pros and cons will help you decide if business vehicle finance is right for your business.
How to get a business vehicle finance
To get the right business vehicle finance, you first need to understand the type of vehicle you need and how much funding you require.
Before applying, look at your business credit score and financial documents to make sure everything is accurate and up to date. A stronger credit profile can help you access better rates and more flexible finance options.
At Aurora Capital, we work with a trusted panel of lenders to offer business loans and asset finance solutions for vehicles.
Our team can guide you to the right option based on your needs. You can apply online in minutes, and we will help you secure the best deal for your business.
Business vehicle loans FAQs
Can I use a business loan for a used vehicle?
Yes, many lenders allow business loans and asset finance to be used to purchase used vehicles. However, some may set age or mileage limits on the vehicles they are willing to finance.
Will there be mileage restrictions?
Mileage restrictions commonly apply if you finance a vehicle through leasing or contract hire agreements.
These agreements include a set annual mileage limit, and exceeding it could result in additional charges. You may be able to choose your mileage limit, but a higher figure could result in higher payments.
If you purchase a vehicle outright using a loan, your business should not be subject to mileage restrictions.
Can I get finance for electric or hybrid business vehicles?
Yes, business vehicle finance options are available for electric and hybrid vehicles. Many lenders actively support green transport solutions, sometimes offering more favourable terms.
Financing an electric or hybrid vehicle can also offer tax benefits and help your business meet its environmental and sustainability goals.
Which type of commercial vehicle finance is right for my business?
The best type of finance depends on your business goals, cash flow and how you plan to use the vehicle.
If you want to own the vehicle, a business loan or hire purchase agreement may be the right fit. If you prefer lower monthly costs and flexibility, leasing or contract hire could be better.
It is important to consider how long you need the vehicle and whether fixed repayments fit your business plans.
