Business Car Finance

What is business car finance?

Business car finance is an umbrella term for commercial finance that lets UK business owners buy cars without paying for them upfront. All business types can apply for business car finance, including limited companies, sole traders, and partnerships.

Car finance helps you spread the vehicle cost into affordable monthly payments, keeping much-needed cash in your business to buy stock, invest in marketing campaigns, or expand your team.

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How does business car finance work?

Here’s how it works:

1. Set up the agreement. Find a new or used car and choose a funding model, i.e. a business loan, hire purchase, or PCP.
2. Put down a deposit. Most finance agreements require a deposit or advance payment, which is a percentage of the value of the car.
3. Make monthly repayments. You’ll then make monthly repayments over the term of the loan.
4. End of the term. When your term ends, depending on the finance type, you might have a few options. Either pay a balloon payment to keep the car, trade it in, or return it to the provider.

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Why choose business car finance over a cash purchase?

There are many reasons business owners choose to apply for finance instead of depleting their cash reserves:

To preserve cash flow

By keeping capital in your business, you can easily cover operational expenses, ride out seasonal fluctuations, and weather dips in cash flow.

Tax and capital allowance savings

You can claim the interest portion of your monthly car finance payments as a business expense, and capital allowances allow you to deduct a percentage of your car’s value from your taxable profits. For example, if you purchase an electric car, you can claim a 100% First-Year Allowance (FYA), writing off the whole cost against taxable profits in the year you purchased it.

Simpler financial forecasting

Repaying via a predictable payment schedule helps make monthly forecasting easy. You know what you’re repaying each month, so it’s easier to budget and plan for your business.

Access to more fuel-efficient cars

As you’re spreading the cost of your new car purchase, you can access options you might not have considered previously. Such as newer and safer cars or electric models.

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Types of business car finance explained

Which business car loan is best for you depends on what you want out of the agreement. I.e. you want to own the car at the end, or your priority is keeping monthly payments as low as possible, etc.

1. Unsecured and secured business loans

With a commercial car loan, you borrow a lump sum of money to spend how you like (as long as it’s business-related). So you can use the loan to purchase a car outright, fund the initial lease deposit, or purchase a fleet of vehicles at the same time.

Through Capalona, you can apply for both unsecured and secured business loans ranging from just £1,000 to more than £2 million. If you need funds quickly, apply for an unsecured loan; if you have a high-value asset you don’t mind risking, you can apply for a secured loan.

Benefits of business loans for cars:

• You own the car immediately. There are no monthly payments for the car; you buy it outright and repay the loan separately. The car is yours from day one.
• You can buy from any dealer. You have the money as a loan, so you’re not restricted to buying from any particular place. Buy from an auction, a private seller, or a dealership.
• No mileage caps. Unlike with a PCP or lease agreement, you aren’t restricted to annual mileage limits or excess mileage charges.
• You can sell the vehicle whenever you want. You don’t have to ask permission from the finance company if you want to sell or modify the car; it’s up to you what you do.
• Funding is flexible. You can use a small business loan to purchase the car, but you can also use it to pay for charging point installation and other associated costs.

2. Business hire purchase (HP)

If you want to own the vehicle at the end of the term, then hire purchase might be the option for you.

How business hire purchase works:

1. Pay an initial deposit. You’ll need to pay a deposit, which is typically 10% of the car’s value plus the full VAT amount upfront.
2. Fixed monthly payments. You then repay the remaining balance, plus interest, over the pre-agreed term.
3. Option to purchase fee. When your agreement comes to an end, you have the option to pay a fee which legally transfers ownership to your business.

Benefits of business hire purchase:

• The car becomes an asset of the company. At the end of the term, you own the car outright.
• There are no annual mileage restrictions. Lenders don’t impose restrictions, as you’ll own the car at the end.
• Balance sheet asset. The car will be an asset on your balance sheet from day one, which means you can claim capital allowances against taxable profits.

3. Business personal contract purchase (PCP)

Business PCP, also known as business contract purchase (BCP), offers business owners lower monthly payments than an HP by deferring a large portion of the car’s cost to a final balloon payment.

How business PCP works:

1. Deposit. Pay the initial deposit, which is typically between 10-30% of the car’s value.
2. Monthly payments. The payments get calculated based on the difference between the car’s price and its estimated guaranteed minimum future value (GMFV) at the end of the term, plus interest.
3. You then have three choices:
• Pay the balloon payment. Pay the GMFV balloon amount to own the car outright.
• Part-exchange the vehicle. Use remaining equity in the car as a deposit towards another vehicle.
• Return the vehicle. Hand it back to the finance company with zero payments due (unless you go over their mileage limits or the car isn’t up to the expected standard).

Benefits of business PCP:

• Lower monthly payments. PCP payments are lower than hire purchase payments because they only cover the car’s estimated depreciation instead of the full purchase price.
• You have end-of-term options. You can decide to keep the car, trade it in, or return the car at the end of the agreement.
• You’re protected if the car's resale value drops. The lender guarantees a minimum future value, so you’re protected against unexpected depreciation.

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Business car finance calculator

Before you apply for car finance, calculate how much funding you can comfortably afford to repay.

Our free business loan calculator helps UK business owners estimate monthly repayments, including total interest payable, average monthly interest, monthly payments, and total cost of finance.

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New business car finance: can my startup apply?

Yes, new businesses can apply for car finance. Where traditional lenders might need a minimum of two years of trading history, alternative specialist lenders look at other factors when making a lending decision.

For example, if you’re a company director with a good personal credit score, lenders might be willing to lend to you with a personal guarantee in place. Or if you can offer a higher initial deposit, or if the lender can verify you have positive cash flow through real-time Open Banking data, they will also consider lending to you.

At Capalona, we match you with eligible business loan lenders through our free platform, and getting a quote won’t affect your credit score.

Find and compare car business loans.

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How to compare business car finance deals

When comparing finance, you need to take into account all the associated costs of the finance, and to do that, keep these in mind when comparing your options:

1. Total amount repayable. You need to know exactly how much applying for finance will cost you, not just the monthly repayments. This includes deposits, monthly payments, final balloon payments, etc.
2. Annual percentage rate (APR). Check whether the advertised APR is fixed or variable. Are there any arrangement fees?
3. Balloon payment (PCP). Make sure the final guaranteed minimum future value is realistic for you.
4. Flexible early repayment options. If you want to pay off your debt early, check what fees are associated with this.
5. Mileage limits. With lease deals or PCP, the lender will stipulate mileage allowances; ensure these align with your expected driving patterns before signing.

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Eligibility criteria for business car finance

Lender criteria vary, but most lenders look for the following basic requirements:

• You must be a UK-registered business, i.e. limited company, LLP, partnership, or sole trader
• You must have a UK business bank account
• At least four months of trading history (although startups can apply)
• Proof of positive cash flow/ability to make comfortable repayments

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Business car finance FAQs