With self-destructive banks hanging on to taxpayer money, rather than passing it on in the form of loans, manufacturer’s dealer networks are stepping into the breach. Steve Banner investigates.
Looking to acquire a van? Aiming to do so using finance? Then you may want to think twice about going to your bank in today’s tough times. If you’ve got an overdraft, then employing the bank’s funding to buy a vehicle may leave it feeling over-exposed to any risk your firm poses.
As a consequence it may refuse to increase your overdraft if you face a sudden emergency; if a key client goes bust for instance. It may even insist you reduce it, leaving you with a monumental cashflow problem; the sort of problem that could put you out of business.
What you should look for is another line of credit; funding from a finance house that is not linked to your bank, possibly arranged through a broker or over the internet. Alternatively you can find out what sort of finance packages the dealer who is supplying your van can offer.
With manufacturers and dealers desperately anxious to sell vehicles in the current grim climate, there are some good deals to be had. Nor do the manufacturer-backed finance operations appear to be short of money to lend — a situation some banks may envy — and most of them report that a rising percentage of van customers seeking funding are turning to them. “We’ve certainly got funds available,” says Peter Owen, sales director at Ford Credit Britain.
At the time of writing a number of franchised dealers were offering zero per cent APR (Annualised Percentage Rate) finance. Traditionally this sort of HP package has included a requirement for the balance to be repaid over as little as 12 months. Not any more.
At the time of writing Vauxhall was offering a zero per cent APR deal over four years. Promoted under the ‘You Pay, We Pay’ banner, it involves the dealer handing the customer a cheque equivalent to 5 per cent of the sum advanced. “With many buyers unsure of what the future holds, we felt that Vauxhall needed to raise the bar in the market and offer something extra,” says Richard Collier, national commercial vehicle sales manager.
The only drawback is that the customer has to put down a minimum 20 per cent deposit, but that’s better than the 50 per cent deposit that such packages typically mandated in years past.
Not to be outdone, Renault was busy promoting zero per cent APR finance over four years too, but with a mere £99 deposit, free ply lining for the load area and the choice of either a year’s Vehicle Excise Duty free or a free Aircon + pack. The latter includes electric windows and mirrors as well as manual air conditioning.
Even if a zero per cent deal isn’t running, the dealer’s finance is likely to be competitive. That’s because it’s often partly subsidised by the vehicle manufacturer in a bid to boost sales in a flagging market. “Typically the APR could be around 7.9 per cent,” says Owen.
It might be even lower. “We’ve got deals available at 5.9 per cent APR,” says Nigel Walker, national sales manager at Citroën Contract Motoring.
Obviously such rates are not as low as the 0.5 per cent bank base rate, but they’re lower than businesses were typically paying as little as a year ago and lower than a High Street bank is likely to charge. Dealers have not changed their credit scoring criteria and are not by and large looking for higher deposits than they were this time last year. “Typically you’re talking about 10 per cent,” Walker says.
Go the HP route and you will almost certainly be required to pay all the VAT on the vehicle upfront. OK, you’ll get the money back if you’re a registered business, but that can take time and place a strain on your cashflow.
Deferral schemes are available under which the finance company will pay the VAT for you and recoup the cost by adding so much to your monthly payments. However it will usually only be willing to do so if you have a healthy financial track record, and using the facility will of course end up costing you more.
Whoever you borrow money from, make sure you take out gap insurance. It covers the difference between the sum you’ve been advanced and the van’s write-off value if it’s wrecked in a collision.
Fail to opt for it and you may find yourself stuck with repaying a loan on a vehicle that no longer exists. “We encourage people to take it out,” says Mark Duckering, brand manager at Renault Finance.
HP is not the only option. You can opt for contract hire, sometimes referred to as an operating lease, instead. Include maintenance in the monthly payments and you will be able to predict a high percentage of your operating costs over the next three to four years.
Contract hire payments are invariably lower than HP payments, but you do not get to own the asset once the agreement has expired. You have to return it to the lessor, who is responsible for disposing of it. This at least has the advantage that you are not taking a risk on the second-hand value.
Bear in mind that you may suffer financial penalties if you return your leased van before the agreement expires, although early termination charges are not of course unique to contract hire. Understand too that while you should not have to pay for the elimination of the odd stone chip or minor scratch, you will undoubtedly be charged if you send your vehicle back with badly dented doors and heavily stained upholstery.
Leasing companies usually produce a guide to what constitutes fair wear and tear, and you should peruse it before you sign any agreement.
Contract hire charges are calculated taking into account the prevailing interest rate, the vehicle’s likely second-hand value and its projected annual mileage. Clock up more miles than you predicted and you are likely to face a pence-per-mile penalty once the agreement expires. To avoid being hit you can ask for the agreement to be restructured after, say, the first year to take into account the fact that the vehicle is working harder than you expected it to. You’ll be paying more per month, but at least you’ll know what the extra cost is.
HP deals are available on used vans and so, increasingly, are short-term operating leases. Mercedes-Benz has been busy offering used 2008-registered 311CDI Sprinter vans, Lutons and dropsides on a 12-month operating lease with prices starting at £300 a month.
Second-hand Vito 109CDI Compact vans dating back to 2005 are up for grabs under the same arrangement at prices starting at as little as £29.99 a week. Flexxilease is offering similar 12-month packages on a wide range of late-registered light commercials under the Flexxivan banner.
In this context it may also be worth looking at a long-term rental deal from somebody like rental giant Northgate. It may work out more expensive than contract hire, but at least it gives you the opportunity to return the van at short notice and without suffering a penalty if you suddenly run out of work.
Trawl the internet for alternative sources of money, compare the APRs and the terms and conditions attached — including any early settlement penalties — and talk to your dealer too. That look of desperation on his face means that he should be able to offer you a mouth-watering finance deal plus a hefty discount off the van of your choice.
When we say hefty, we’re thinking about the £7,105 discount being offered on new Relays and the £5,625 discount being offered on new Dispatches by Citroën recently. As for double cab pick-ups dripping with extras, make the dealer an offer and, however silly it is, he’ll probably be only too glad to take it.
Now more than ever, it pays to shop around for finance rather than simply trot off to your bank. It’s never been a better time to acquire a vehicle, so if you can afford to, take the plunge. With a strong euro and sterling flat on its back, light commercials aren’t going to get any cheaper.