Truck and HGV finance

Keen to get your goods moving far and wide? Here’s the lowdown on leasing options to help you purchase heavy goods vehicles (HGVs), lorries, or trucks for your business.

By Luke O'Neill on 28/10/2019

Here’s the lowdown on leasing options to help you purchase heavy goods vehicles (HGVs), lorries, or trucks for your business/ | iwoca

What’s covered in this guide?

Purchasing trucks can help broaden your operations into different regions and countries. But trucks can be costly to buy outright. What’s more, many companies won’t have the inhouse maintenance facilities to service and maintain trucks.

Leasing can help with some of these concerns, especially when it comes to HGVs like rigid trucks or articulated lorries.

But hang on a minute: what is a HGV?

The acronym stands for heavy goods vehicle. There’s a range of criteria that separate HGVs from light goods vehicles (LGVs) and light commercial vehicles (LCVs), such as vans or pick-up trucks. Acronyms aside, HGVs are essentially large trucks or articulated lorries with a gross vehicle weight of between 3.5 and 44 tonnes.

They’re big, they don’t come cheap and they can be costly to run, as these recent cost tables from Motor Transport magazine show.

That’s why business-owners, hauliers and procurement leaders often find themselves thinking twice about purchasing new or used trucks. The added drawback of asset depreciation does not help ease these worries.

This is where truck finance may be worth considering.

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What are my truck financing options?

You’re probably already weighing up your options across HGV finance, pick-up truck finance and lorry finance based on your business’s own unique haulage needs. So let’s leave aside whether you should buy new or second hand and run through your truck financing options.

Hire purchase or lease purchase

Through hire purchase, your business can lease a truck for a fixed amount over a fixed length of time. You’ll have the option to purchase the truck or lorry at the end of the contract. Your business gets full use of the vehicle across the lease term, but it won’t technically own it until a final payment is made.

Lease purchase is similar — but it’s not the same. Lease purchases tend to have a larger ‘balloon payment’ towards the end of the fixed period. While this can reduce your monthly repayments initially, it does mean you’ll have to plan for a larger final payment. So do more homework if weighing up the two.

Contract purchase

Next up, let’s look at contract purchase.

Contract purchase may help to manage depreciation losses. Your repayments will cover the estimated residual value of the vehicle. We’re going to come back to that phrase ‘residual value’ later. For now and in plain English, it means that you’re repaying towards a lower estimated future value of the truck — not its originally higher, initial value. You can return the vehicle or buy it with a final payment at the end of the contract. As always, it pays to read the leasing company’s small print.

Finance lease

Unlike a contract purchase, a finance lease does not allow for future ownership.

The benefits may be hard to spot, as monthly repayments usually cover a truck’s sticker price, not to mention interest. So what exactly is the benefit? Well, once the contract ends you can sell the truck on behalf of the leasing company while keeping much of its (now reduced) value. Or, you can extend the lease at a slashed repayment rate.

Operating lease

Okay, here’s that little bit of jargon again: residual value. Let’s define it better here, because it’s a key part of how operating leases work. Basically, residual value is how much an asset is worth after it has depreciated over time.

What’s it got to do with an operating lease? Well, an operating lease lets your business hire a truck for a far shorter period than its roadworthy life. Leasing companies can then re-lease or sell the truck at its residual value when your contract ends. In short, your business is exchanging future ownership for bearing less risk around a potentially poor residual value.

Contract hire

Contract hire is much like an operating lease. The difference is that this kind of leasing arrangement can include optional extras from the leasing company that owns the truck. It may be worth considering if you want your business to avoid being burdened by depreciation, maintenance costs and specialised roadside assistance fees. Options differ across leasing firms and truck types, so dig deep in the fine print.

Disclaimer: Here’s something you’ll need to seek expert advice on: VAT. Every one of the above leasing types come with different VAT considerations, that could make what seems like a suitable option unsuitable and vice versa. An accountant should be able to guide you.

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How to finance a truck

That’s probably a lot to absorb in one sitting. Let’s look at the key steps you need to take to finance a truck in the UK:

  1. Factor in any running, maintenance, insurance and fuel costs.
  2. Explore finance that suits this budget, your cashflow and other operational realities
  3. Ask your accountant about the nitty gritty, such as on-sheet and off-sheet balance finance, VAT implications, any capital allowances, and APR and flat rate considerations.
  4. Select a leasing agreement or loan that best suits your business’s unique situation.
  5. Prepare your financial documentation and apply for a suitable lease or loan.

How long is a truck finance contract?

While you’re doing this legwork, you’ll need to think about contract lengths too. There’s no standard length but as a guide, operating leases can last as little as 1-2 years, while hire purchases may span five years or more.

Buying a new truck or a second hand truck

Costs can vary widely based on the vehicle’s specifications, according to Motor Transport magazine. Rigid trucks can cost from £44,465 to as much as £111,580, depending on the tonnage and specifications. Articulated trucks can range from £69,981 to £83,215 and that’s without factoring costs for additional trailers. It’s much harder to come by a reliable average price for second hand trucks, because used vehicles differ widely in age, tonnage, mileage and technical specifications.

And it’s this distinction that sums up some of the key pros and cons of buying a new or second hand truck. Used truck financing may appear more affordable when you first compare it with new truck finance rates. But don’t forget that a new lorry is far more likely to have more manageable costs around ongoing maintenance and servicing – which only some leasing agreements will include in your repayments.

How iwoca can help

You’ll have a sense by now that truck finance in the UK is by no means clearcut. If you get stuck during your search for a suitable truck financing option, talk to us. With iwoca, you can apply for an unsecured business loan from £1,000 – £200,000. This can be used for any purpose that supports or grows your business. You can use our Business Loan repayment calculator to crunch the numbers.