Why lease your new electric van?

Electric Vans / Electric Van Guides / Lease your new electric van

Leasing is an increasingly popular method of funding a new vehicle, but is it the best way of getting behind the wheel of a new electric van? What are the pros, and are there any cons? Our independent and impartial Van Expert Tim Cattlin drills down into the detail…

What is a lease?

It’s an overused term so things can get quite confusing. You might have heard of a finance lease, an operating lease or a lease-purchase agreement but for the purposes of this article, we’re going to look at business contract hire. The key feature of contract hire is that you’ll never own the vehicle – think of it as a long term rental. You’ll pay an initial rental that is usually equivalent to a number of the monthly payments, then pay a fixed monthly rental until the end of the agreement. There’s no ‘balloon’ or final large sum to pay, at the end of the agreed term the vehicle is returned to the leasing company. So, when you see the term ‘leasing’ in this article, we’re talking about business contract hire.

Is leasing particularly suited to electric vans?

Let’s start by thinking about how electric vans are evolving. Manufacturers are constantly bringing out vans with new levels of equipment, better safety tech and driver aids, but every year we are seeing improvements in the range that the vans can cover on a full charge. A few years ago you’d struggle to find one that could cover 100 miles – now there are some that can complete over 200 before needing a charge and it won’t be long before we see the magic 300 figure being achieved.

So, if you buy a new van today intending to change it in, say 4 years, by then it could look quite dated with obsolete technology and the van user that would normally buy a second-hand vehicle might prefer to splash out on a newer one with all its improvements. The result? The new van that you bought may not be sought after and the price that you get when selling or part-exchanging it could be well below any previous expectation.

Here’s one of the biggest advantages of leasing your new electric van – you have no risk regarding its future value, the leasing company take this aspect on board. They forecast how the van might depreciate and this figure forms a proportion of your monthly rental. It’s guesswork on their part, and if they get it wrong, they take the pain, or, to be fair and balanced, if they had underestimated the future value, they get a little win. However you, the customer know from the outset what the van is going to cost you. The used electric van market is in its infancy at present, and values have, up to now been weak with early operators getting less back on vehicle disposals than they expected. Who knows where we will be in a few years, but you can let someone else do the crystal ball gazing and sleep well at night.

At the end of the agreement you’ll have a clean slate and an empty driveway ready to take delivery of your new, bang up to date electric van.

I’ve heard about end of contract charges for damage, and this worries me. If I buy the van, scratches and scrapes don’t matter.

When forecasting the future value of the van the leasing company makes assumptions about the condition it will be in at the end of the term and, upon collection, the van will be inspected and any damage noted. Most abide by guidelines issued by an industry trade body which allow for a limited amount of minor damage without charges being made but anything above that will be invoiced back to the customer. But, think about it this way – if you had purchased the van rather than leased it, and you came to sell or part exchange it, whoever was buying it would also make a deduction for any dents, dings or scrapes that they could see. The damage will need to be rectified before the van is put on a forecourt for re-sale and, sadly, there’s no avoiding the fact that it has to be paid for however the van was originally funded.

It’s a good idea to have any areas of damage that fall outside of the acceptable guidelines repaired prior to the end of the lease – you’re in control and you can shop around for the best price.

OK, sounds good so far, are there other advantages to leasing a new electric van?

Quite a few actually, and most of these also apply if you’re still considering a diesel vehicle.

Some finance products require the full VAT element to be paid alongside the deposit. Although VAT-registered customers will normally be able to reclaim it within 3 months, it’s a lot of money to find initially. With leasing, the VAT is paid proportionally on the initial and monthly rentals.

100% of the rentals are a tax deductible expense as the van is not considered to be an asset.

You’re using an additional line of credit – you’re not involving your bank which will still be there if you need to fund other capital equipment.

The van will be under warranty for most, if not all of the duration of the contract, and this, together with an optional additional monthly payment to include maintenance allows for accurate budgeting and no nasty surprises.

And disadvantages?

Despite arguments that it might not make financial, or in the case of an electric van practical sense, some prefer to have the flexibility to keep their van for an indeterminate length of time, changing it when they see fit, when circumstances allow or even to ‘run it into the ground’. The lease is for a fixed term and usually cannot be extended.

When obtaining a quote for a lease you’ll need to estimate the mileage you will cover every year so that the leasing company can forecast its value when it is returned. For an established business it’s usually possible to work out a reasonably accurate figure, but, if you under-estimate there will be a charge per excess mile at the end of the term, but sadly there’s no rebate if you don’t cover the expected mileage.

Obviously, at Global Vans we would prefer you to lease your new electric van but, for the majority, it genuinely does make sense, particularly during these relatively early years when resale values are so unpredictable and technology is rapidly changing.