Truck, lorry and HGV finance

Purchasing a truck is a major expense – even more so if you’re investing in a fleet. That’s where truck finance can make a huge difference, providing you the upfront capital to get the vehicles you need and spread the cost over the long term.

Truck finance comes in many shapes and sizes – here we’ll explain what you need to know about the options available and how to make the right choice. 

What is truck finance?

Truck finance refers to financing tied to a specific truck, lorry or HGV purchase, either asset finance or a short term business loan. 

It's a form of lending that allows your business to purchase the vehicles you need without having to shell out all the capital upfront. Businesses of different types can use truck finance as asset finance because the loan is secured against the truck, lowering the risk to the lender.

Why use truck finance?

Truck finance can make the difference between getting your vehicle now or waiting months to save up the capital.

• Make your truck more affordable: Finance the upfront purchase and pay back the value over up to 24 months.
• Get exactly what you need: Borrow up to £500,000 to invest in the type or number of vehicles you need without being constrained by liquidity. 
• Repay on your terms: If your truck fleet increases your revenue then you can repay early to reduce your borrowing costs.

How to finance a truck or a lorry

While there are lots of ways to finance a truck, lorry or HGV, the process is generally consistent. 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 does business van finance work with iwoca?

Apply in minutes

Applying for an iwoca Flexi-loan takes just five minutes from start to finish. We're designed with small businesses in mind, so we'll just need the basics about your business to make a decision.

Use your funds

We'll approve you based on your business performance. You then transfer as much as you need to purchase your truck, lorry or HGV to your bank account, and the funds will typically be in your account in hours.

Repay or top up

We don't charge early repayment fees: we only charge interest for the days you have the money. If you need more funds, applying for a top up is easy. As your business grows your credit limit will too.

What are my truck finance options?

There is a wide range of truck finance options available depending on whether you want to purchase and keep the vehicle, how long for and how the payments look.

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

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.

How long can you finance a commercial truck?

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 with truck finance

You’ll have a sense by now that truck finance in the UK is a diverse playing field. If you get stuck during your search for a suitable truck financing option, talk to us. 

We're able to offer small businesses loans of between £1,000 and £500,000. To learn more about this loan or to check your eligibility in 2 minutes, have a look at our Flexi-loan

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