Truck finance: HGV hire purchase and leasing

Hire purchase is the most common way hauliers fund trucks they intend to keep. You pay a deposit, then fixed monthly instalments over the term, and once you have made the payments and settled a final option to purchase fee, the vehicle is yours. Throughout the agreement the funder holds title as security, which is what makes hire purchase easier to arrange than an unsecured loan of the same size.

The appeal is ownership. At the end you have an asset with residual value that you can keep working, sell or use as equity towards the next vehicle. Fixed instalments make budgeting simple, and because the truck sits on your balance sheet you may be able to claim capital allowances, though you should confirm the tax treatment with your accountant. Hire purchase suits operators who run trucks hard for years and want the asset to belong to the business.

Leasing keeps ownership with the funder and you pay to use the vehicle, which lowers your initial outlay and can free up cash. There are two main forms and they behave differently at the end of the term.

• Finance lease. You rent the truck over an agreed term with rentals based on the vehicle cost less an estimated residual value. At the end you can usually extend the lease at a low rental, or sell the vehicle on the funder's behalf and keep an agreed share of the proceeds.
• Contract hire. An operating lease where you rent the truck for a fixed period, often with maintenance and servicing bundled into one monthly figure, then simply return it. You carry no residual value risk, which makes costs highly predictable.

Leasing suits operators who refresh their fleet on a cycle, want to avoid the risk of falling used values, or prefer a clean monthly cost that includes upkeep. As always, how a lease is treated in your accounts is a matter for your accountant.

Both new and used HGVs are readily fundable, and the right choice is a commercial one rather than a finance one. New trucks bring warranty cover, the latest emissions compliance and strong residual values, which often means keener finance terms and the longest available agreements. Used trucks cost less to buy and can be funded over shorter terms, which suits operators who want lower capital exposure or who have a specific vehicle in mind.

For used vehicles, funders look closely at age, mileage, condition and service history, because those drive the resale value that protects the deal. A tidy used tractor unit with a clear history is straightforward to fund. Where a vehicle will be older at the end of the term, expect a larger deposit or a shorter term to keep the funder comfortable. We know which funders on our panel are most comfortable with used stock, so we can place the deal accordingly.

Truck finance is priced case by case, so we do not quote a single rate. The cost depends on the age of the vehicle, the deposit, the length of the term and the strength of your business and its trading record. A new tractor unit for an established haulier on a longer term prices very differently from an older vehicle for a newer operator.

As a guide, terms typically run over two to five years, sometimes longer for new trucks with strong residual values. A bigger deposit, a newer vehicle and solid accounts all help. Because these factors move the number so much, the honest approach is to take your details, put the deal to the funders on our panel and come back with real figures. That way you plan around numbers that reflect your actual deal rather than a headline rate.

Funders assessing a truck deal want to see that the vehicle will earn enough to cover its payments and that the business behind it is sound. That means they look at your trading history, your accounts and cash flow, any existing finance commitments and, for HGVs, your operator licensing position. A clear explanation of the work the truck will do, backed by contracts or a steady book of business, strengthens the case considerably.

Newer operators are not shut out, but expect funders to want a larger deposit or a director's support until the trading record is established. Keeping your accounts up to date, showing healthy utilisation on your existing vehicles and being ready with the vehicle details all speed the decision. We package the application properly and put it to the funders most likely to say yes, which saves you time and avoids unnecessary credit searches.

If you own trucks outright, or have equity in vehicles you are part way through paying for, you can release some of that value back into the business through refinancing. This raises cash against the asset while you keep running the vehicle, which can be useful for funding an expansion, easing a seasonal cash flow squeeze or consolidating more expensive borrowing. The amount available depends on the age and value of the vehicle and any finance already outstanding on it.

Refinancing works much like hire purchase in reverse. The funder advances a sum secured against the truck, and you repay over an agreed term. It is a sensible way to make working assets do double duty, but it does add a monthly commitment, so it only makes sense where the cash is put to productive use. We will be straight with you about whether it stacks up for your situation.

To get moving, tell us the truck you want to fund, whether it is new or used, the deposit you can put down and a little about your business and how the vehicle will be used. We will confirm quickly whether hire purchase or a lease fits best, give you an honest view of the likely term and cost, and put the deal to the right funders on our panel.

We are a finance arranger and introducer, not a lender. Commercial lending to limited companies is not regulated by the Financial Conduct Authority. Some agreements, for example consumer hire or lending to sole traders and individuals, can be regulated, and we refer those to an appropriately authorised firm. Nothing on this page is financial, tax or legal advice. Contact us with your deal and we will get you a decision.