Four ways sole traders can finance an electric van

Four ways sole traders can finance an electric van

With the sale of new petrol and diesel vehicles to be banned in 2030, larger companies like Royal Mail have taken steps to transition towards a fully electric fleet. With the cost of living crisis at the forefront of everyone’s minds, it presents the question of whether tradespeople and small businesses will also be able to make this switch.

The government has a number of plug-in grants available for vehicle dealerships and manufacturers, which allows them to offer discounted prices on new low-emission vehicles. This includes small vans under 2,500kg and larger vans up to 4,250kg. Businesses can claim a total of 1000 grants and the limit resets each year. The grant will pay for 35% of the price of smaller vans up to £2,500 and larger vans up to £5,000.

Dan Powell, Senior Editor of used-car dealership AutoVillage, gives his advice on the four main options available to those seeking to purchase an electric vehicle: Leasing, Contract Hire, Personal Contract Purchase and Hire Purchase. Below, he explains each option and the associated pros and cons.

The key benefits
In the wake of the cost of living crisis, many businesses are trying to reduce their overheads. The main advantage of EVs is the low running costs. Petrol currently costs an average of 170.97p per litre, meaning refuelling a 80-litre van costs drivers on average £136.78. In contrast, EV owners can recharge their van at home for just £15. Particularly in the current cost of living crisis, the low running costs are attractive to business owners.

Option 1: Leasing
Leasing is essentially a long-term vehicle rental that is split between two and four years. You usually pay an up-front fee, plus monthly payments for the length of the lease. The management and maintenance of the van is handled by the leasing company. There is no depreciation to worry about, either. At the end of the contract, you return the vehicle to the manufacturer or finance company.

Leasing deals can be one of the cheapest ways to finance an EV, but there’s usually no option to buy the van at the end of the contract. Most leasing agreements will also limit the number of miles you can drive in a year, so high-mileage drivers will need to factor this in or they may find themselves hit with excess mileage fees.

Option 2: Contract Hire
Similar to Leasing, a Contract Hire agreement is a long-term vehicle rental. The term is typically between one to five years and often has a mileage limit for the period of hire. These agreements are attractive to small businesses due to the fact that they only require a small initial outlay. This makes it a lot more accessible and gives them the opportunity to expand their fleet with limited resources.

Maintenance is often included in the contractual agreement, however, the van must be returned in reasonable condition and any damage will result in excess fees. As you do not technically own the vehicle there are no depreciation costs and the monthly payments are allowable against tax. This is a flexible agreement that takes into account fluctuating workloads, and lets companies expand and decrease their fleets with ease.

Option 3: Personal Contract Purchase (PCP)
PCPs are very popular. Instead of paying off the entire value of the vehicle over the term of the agreement, you only pay off the depreciation. As a result, the deposit and monthly payments tend to be lower than a traditional hire purchase agreement.

A PCP will let you spread the cost of the finance over a number of years. Payment is split between an initial deposit, followed by monthly payments over the term of the contract and an optional ‘balloon’ payment at the end (which you pay if you want to keep the vehicle).

The advantage of PCP is the options you get at the end of the contract, which lets you buy the vehicle, swap it for a new model (and new PCP agreement) or walk away.

Paying the ‘balloon’ payment means you can keep the vehicle and this can be split over two or three years if you cannot afford the lump sum. Alternatively, you can return the van to the dealer and put any equity towards the deposit for a different vehicle or walk away from the agreement altogether.

As with any finance agreement, a PCP will require you to commit to the finance agreement for three or four years. You will also be asked to agree to a mileage limit that will range from 6000 miles a year to 10,000 miles per year. You’ll also be charged a fee if you hand the van back with any damage.

Option 4: Hire Purchase
In a Hire Purchase contract, the cost of the van is split into a deposit and monthly instalments, plus interest, which is paid over a number of years. The loan is secured against the van, so you do not own the vehicle until the final instalment is paid.

Hire Purchase is similar to a PCP, but the full cost of the van is spread across the contract. There is no ‘balloon’ payment, but the monthly costs tend to be higher. The same risk applies to both hire purchasing and PCP; if you cannot afford the payments, you will have to return the vehicle.

Financing an EV breaks down what can be a significant purchase into manageable chunks.  Long-term contracts can make a variety of vans attainable, provided you can afford the monthly payments.

There are lots of affordable electric Light Commercial Vehicles on the market right now, with the Renault Kangoo E-Tech, Volkswagen ABT e-Transporter, Ford E-Transit and Mercedes-Benz e-Sprinter being good options.

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