In the world of business today, van contract hire is emerging as a winning option for UK businesses. With the rising costs of vehicle ownership – driven by soaring interest rates, unpredictable depreciation, and mounting financial pressures – many SMEs, tradespeople, and delivery services are rethinking traditional financing. For freelancers and start-ups, the upfront expense of purchasing a van can be a significant hurdle, adding strain to already tight budgets. That’s where van hire companies like Pace step in, offering a flexible and cost-effective solution that lets businesses focus on growth instead of grappling with financial uncertainty. In this article, we’ll look at why van business contract hire is quickly becoming the preferred choice for businesses of all sizes.
The Current Economic Climate And Vehicle Ownership Challenges
High interest rates, depreciation, economic uncertainty, and changes in regulations can all significantly impact businesses’ van purchasing decisions. Let’s look at the details:
The Rising Costs Of Borrowing And Economic Uncertainty
In recent years, the Bank of England has been raising interest rates in an effort to keep inflation under control and stabilise the cost of living. After maintaining historically low rates (as low as 0.1% during the pandemic to support the economy), the Bank of England began increasing rates significantly in 2021, 2022, and 2023, as inflation surged. These rate hikes have been larger and more frequent than in the previous decade, driven by factors like global supply chain disruptions, soaring energy prices, and the economic aftermath of the COVID-19 pandemic.
While raising interest rates helps curb inflation, it has a downside: it makes borrowing more expensive. For businesses, especially those looking to purchase vans or other vehicles, this means higher costs for financing. As interest rates rise, loan repayments increase, which makes it more difficult for businesses to afford new purchases, including fleet vehicles. This is particularly challenging for small and medium-sized businesses that often rely on financing to buy vans for their operations.
Additionally, the broader economic uncertainty—such as rising energy costs, and the strain on household budgets—adds further complexity to buying decisions. With businesses already facing higher operating costs, the rising costs of borrowing discourage many from making big investments, like buying new vans, out of fear they may struggle with repayment or that the economic climate could worsen.
On top of all of that, the increased risk of loan defaults is prompting finance companies to become more cautious about who they lend to. With the potential for more businesses and individuals to miss payments, lenders are tightening their criteria, making it harder for some businesses to access financing for new van purchases. As a result, businesses are forced to reconsider whether now is the right time to invest in new vehicles or if they should wait for more stable conditions.
Depreciation Risks With Vehicle Ownership
Overtime, the value of a vehicle can depreciate, and it’s an important factor for businesses to consider when thinking about purchasing a van. Depreciation risks for businesses include:
- Lower resale value
When a business buys a van, it is expected to lose value as it ages and gets used. For example, a van may be worth £20,000 when new, but after a few years, its value could drop by 30% or more. This means that when the business eventually wants to sell off or trade in the van, it will not get back as much money as it initially spent. This loss of value can be a significant concern for businesses, especially those that rely on fleets of vehicles. - Uncertainty about the value in the future
Depreciation can be unpredictable, and factors like market conditions, vehicle condition, mileage, and demand for used vans all play a role in how much a van will depreciate. This makes forecasting how much a business will recover when they sell the van later, quite tricky. This uncertainty around future resale values puts businesses off committing to large purchases. - Impact on cash flow
As the value of the van drops, the business may need to write off a portion of its initial investment, affecting cash flow. If a business purchases several vans for a fleet, depreciation can quickly erode a large chunk of capital. On top of economic uncertainty and high borrowing costs, these risks can make buying a van less appealing.
On a side note, used car prices surged during the pandemic due to supply shortages, but now prices are stabilising or even falling. For finance companies, this creates a risk—if someone defaults on their loan and the car has to be repossessed, the car may be worth less than the outstanding loan amount.
Regulatory Changes Affecting Businesses
The UK’s Financial Conduct Authority (FCA) has increased scrutiny on lending practices to ensure they are fair and transparent for consumers. This heightened regulatory oversight has made some companies reassess their involvement in certain markets, as the compliance burden can outweigh the benefits.
For instance, Lloyds Banking Group’s motor finance division, Black Horse, recently paused commission payments following a Court of Appeal ruling that deemed undisclosed commissions in car finance deals unlawful. The ruling requires lenders to disclose all commission payments to customers and obtain their consent. To comply, Lloyds has temporarily halted commissions to review its practices and ensure full transparency, avoiding potential legal risks and penalties.
Close Brothers, another prominent motor finance provider, has also reduced its car financing operations. The company cited challenges balancing consumer affordability with profitability and increased FCA scrutiny as key reasons for this decision.
Two fitting examples of how new rules or changes can ripple through the finance industry, forcing companies to quickly adapt, and often resulting in added costs, operational disruptions, or even scaling back certain activities to accommodate.
Case Study: How Long-Term Van Hire has helped The Kellerher Group
Find out how our long-term van hire solution has supported the cash flow, fleet expansion and operational efficiency of The Kelleher Group. Click here for case study.
Why Choose Pace For Van Leasing
- Exceptional service, tailored to You
At Pace Van Hire, we combine the personal touch of a family business with the strength of a large-scale operation. Our approach guarantees you efficient, reliable service with the individual attention your business deserves.
As a long-term hire customer, you’ll benefit from a dedicated account handler who truly understands your needs. With their direct mobile number, you’ll enjoy quick, hassle-free communication without the frustration of lengthy hold times.
- Cutting-edge fleet tracking
Our long-term rental vans (12 months or more) come equipped with advanced telematics, providing real-time tracking for seamless fleet management. Gain enhanced visibility and control over your operations with our state-of-the-art technology.
- Fair and transparent damage costs
We believe in fairness. That’s why damage costs are assessed by a local, independent expert, ensuring transparency and eliminating unexpected fees at the end of your hire.
Partner with us for straightforward, reliable, and customer-focused van hire solutions.
In summary, the pullback of UK finance companies in areas like car financing, consumer credit, and personal loans has sent shockwaves through various industries. Coupled with economic uncertainty, high interest rates, depreciation risks, and sudden regulatory shifts, purchasing vans has become an increasing challenge for businesses.
Fortunately, there’s a solution: business contract hire.
Ready to secure your next van for the long term? Contact Pace today for a free quote and discover how we can support your business.
