Top 5 Mistakes to Avoid When Leasing a Van

At the end of your van lease, you’ll return the vehicle to the leasing company unless you’ve arranged to extend the lease or purchase the van (depending on the agreement type). Most business leases, such as Business Contract Hire (BCH), are “use-only” agreements, meaning the van must be handed back.

Before return, the vehicle will be inspected in line with the BVRLA Fair Wear and Tear Guidelines. This check ensures the van has been kept in a reasonable condition for its age and mileage. If there’s excessive damage (like large dents, interior rips, or cracked windscreens) or if you’ve exceeded your agreed mileage allowance, you may incur end-of-lease charges.

Here’s what you should do before returning:

• Clean and inspect the van

• Repair minor damage if needed

• Check service history and documentation

• Remove personal items and business signage

• Ensure the logbook (V5C), spare keys, and accessories are returned

After that, you’re free to start a new lease with a brand-new van, keeping your fleet fresh and worry-free.

The 90% rule is an accounting guideline used to determine whether a lease is a finance lease or an operating lease under traditional accounting standards (such as IFRS or GAAP). It doesn’t apply to most standard business leasing agreements, such as Contract Hire, but it’s relevant for internal business finance and auditing purposes.

Under this rule, if the present value of the lease payments equals or exceeds 90% of the asset’s fair market value, the lease is considered a finance lease (meaning it's more like a purchase over time). If it’s less than 90%, it may be classified as an operating lease.

For most customers of Silverstone Leasing, especially those using Contract Hire, this rule isn’t something you need to worry about. However, your accountant may use it when preparing your company’s financial reports, particularly for asset-heavy industries.

While leasing has many benefits, there are a few pitfalls to be aware of before entering into an agreement:

• Mileage limits: Exceeding your agreed annual mileage can result in excess mileage charges at the end of the lease.

• Wear and tear costs: You must return the van in good condition. Damage beyond fair wear and tear may lead to repair charges.

• No ownership: You never own the vehicle, so there's no asset retained or resale value at the end.

• Early termination fees: Ending the lease early can be expensive, with fees often equating to a significant portion of the remaining payments.

• Limited flexibility for modifications: Customising or altering the van during the lease term is generally not permitted without prior approval.

• Credit checks: Leasing is subject to approval, and companies with poor credit history may face restrictions or require personal guarantees.

That said, most of these pitfalls are avoidable with clear communication, proper vehicle care, and choosing the right lease for your needs.

The 5 criteria for classifying a lease come from traditional accounting rules (such as those under IAS 17 and ASC 840) to determine whether a lease is treated as a finance lease or an operating lease. These are especially relevant for accountants and less so for day-to-day business lease customers, but here they are simplified:

1. Transfer of ownership – If ownership of the asset transfers to the lessee at the end of the lease, it's a finance lease.

2. Purchase option – If there's an option to buy the van at a bargain price, it may qualify as a finance lease.

3. Lease term – If the lease covers the majority (typically 75% or more) of the asset’s useful life, it's considered a finance lease.

4. Present value of lease payments – If this equals or exceeds 90% of the van’s fair value, it indicates a finance lease.

5. Specialised asset use – If the van is so specific that only the lessee can use it without significant modifications, it’s a finance lease.

For most UK business van leasing customers, particularly those using Business Contract Hire, these criteria aren’t something you need to worry about, but they do affect how the lease appears on your company’s balance sheet.

The Rule of 78 is a method of calculating interest on certain types of finance agreements, often used in older or high-interest loans. It applies primarily to Hire Purchase or Conditional Sale agreements, not to standard Contract Hire leasing.

With the Rule of 78, more interest is paid in the earlier months of the agreement, even though payments are fixed. If you settle the finance early, you may find that you’ve paid more interest than expected up to that point, and the rebate on early termination is lower.

This rule is not used in regulated Business Contract Hire agreements, which are the most common type of lease offered by Silverstone Leasing. However, if you're considering HP or Finance Lease, it’s worth understanding how this rule might affect early settlement costs.