Unsecured loans vs asset finance for contractors — what’s the usual cost difference?

Short answer: For contractors buying vans, plant or higher‑value tools, asset finance is usually cheaper in monthly cost and APR than an unsecured loan because the asset provides security to the lender. For small sums (under ~£10k) or urgent working‑capital needs, unsecured lending can be faster and simpler but typically carries higher rates and fees. Exact savings depend on loan size, term, credit profile and product (hire purchase, lease, unsecured loan). Get a free eligibility check and tailored quotes to compare options: Get Quote Now — Free Eligibility Check.

Important information: UK Business Loans is an introducer and not a lender. We connect businesses to lenders and brokers who may carry out affordability or credit checks. All examples and rates on this page are indicative and for guidance only. For regulated financial advice contact an authorised adviser.

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Quick answer — headline comparison

In plain terms: asset finance is usually cheaper than unsecured loans for larger purchases because lenders can take the vehicle or equipment as security. Typical savings are a few percentage points of APR on mid‑value items (vans, plant) and larger for high‑value kit. Unsecured loans are more expensive because the lender takes more risk. However, unsecured borrowing can be quicker and avoid repossession risk on the specific asset.

These are indicative ranges — for a tailored comparison based on your business, Get Quote Now — Free Eligibility Check.

Why contractors choose unsecured loans or asset finance

Contractors in building services (electricians, plumbers, HVAC, small plant operators) pick finance by matching the product to the need:

• When contractors use unsecured loans
  • Short‑term working capital, bridging a gap in cashflow
  • Smaller purchases (consumables, low‑value tools) or when you don’t want the item to be encumbered
  • Generally simpler paperwork and quicker decision for well‑run businesses
• When contractors use asset finance
  • Buying vans, diggers, larger plant, specialist machinery or expensive tool fleets
  • Hire purchase (HP) and finance leases let you spread cost, and lenders usually accept the asset as security
  • Can need smaller deposits and offer better tax/treatment for capital allowances and VAT (seek accountant/HMRC guidance)

For sector-specific support (for example van and tool funding in building services) you can learn more about our building services options at our building services business loans page. If you want immediate comparisons, Start Your Enquiry (2 minute form).

What drives cost? Key cost components to compare

Don’t judge offers by the headline rate alone. Here’s what moves the final number:

• Interest / nominal rate vs APR — APR includes interest plus upfront fees; use APR for apples‑to‑apples.
• Arrangement & documentation fees — fixed or a % of the amount, often 1–6%.
• Deposit / upfront payment — many HP or lease deals ask for a deposit (often 0–20%).
• Residual or balloon payments — relevant for leases and HP with final purchase options.
• Early repayment charges — can be costly on some secured products.
• Valuation, delivery, maintenance and admin fees — often overlooked when comparing monthly quotes.
• Tax & accounting effects — operating lease vs HP affects balance sheet and potential tax relief (talk to your accountant).
• Security — secured/asset‑backed finance usually gives lower rates; unsecured is higher to cover lender risk.

Here’s how these items change the headline number — always request a breakdown of APR, fees and total amount payable. For tailored comparisons, Get a Free Eligibility Check.

Typical market rate ranges (indicative as of Oct 2025)

These are indicative UK market ranges for contractor businesses; actual offers depend on credit, term, lender and the asset.

• Unsecured business loans — for well‑qualified contractor SMEs, rates commonly start around 6–12% (clean credit) but can be 12–30%+ for higher risk or short‑term products. Arrangement fees often 1–6% or a fixed charge.
• Asset finance (HP, finance lease, chattel mortgage)
  • Small equipment & tools: typical effective finance rates ~6–15% APR depending on term.
  • Vans & plant: asset finance is frequently cheaper — common ranges ~4–12% APR for borrowers with reasonable profiles; larger assets often attract better terms.
  • Operating leases: effective costs vary and have different balance sheet/tax implications.
• Invoice finance / factoring — cost model differs (often 0.5–3% of invoice value per month + fees).

Need exact numbers for your van or excavator? Get Quote Now and compare offers from lenders and brokers who specialise in trades.

Worked examples (indicative)

All figures rounded and indicative — these examples show how rates and fees change monthly payments and total cost.

Scenario 1 — Small tools: £5,000 over 24 months

• Unsecured loan: assume 15% APR + 3% arrangement fee.
  • Arrangement fee = £150 (3%); amount financed = £5,150. Monthly ≈ £246. Total repayable ≈ £5,904.
• Asset finance (HP): assume 9% APR, 10% deposit (£500).
  • Amount financed = £4,500. Monthly ≈ £205. Total repayable ≈ £4,920.

Conclusion: asset finance here gives a lower monthly payment and total cost; unsecured may be chosen for speed or if you don’t want the asset secured.

Scenario 2 — Work van: £20,000 over 48 months

• Unsecured loan at 12% APR: monthly ≈ £531; total repayable ≈ £25,488.
• HP at 7% APR with 10% deposit (£2,000): amount financed £18,000. Monthly ≈ £436; total repayable ≈ £20,928.

Conclusion: asset finance (HP) reduces monthly outlay noticeably and preserves working capital.

Scenario 3 — Plant: £80,000 over 60 months

• Unsecured borrowing at 14% APR (if available): monthly ≈ £1,855; total repayable ≈ £111,300.
• Asset finance at 6.5% APR with small deposit: monthly ≈ £1,574; total repayable ≈ £94,440.

Conclusion: for high‑value plant, secured asset finance often delivers the biggest percentage savings because the lender’s risk is reduced by the value of the asset.

Want quotes based on your exact numbers? Get Quote Now — Free Eligibility Check.

How to compare offers properly — a quick checklist

Before you sign, check:

• APR and total amount repayable (including all fees)
• Deposit, residual and final purchase options
• Early repayment charges and exit conditions
• VAT and tax treatment (accountant/HMRC guidance)
• Service, maintenance or insurance included in lease packages
• Reporting to business credit agencies (impact on credit file)
• Reputation of lender/broker and whether the partner fits building services sector needs

Use a broker to negotiate terms if you have complex needs. To compare multiple offers quickly, Get a Free Quote and we’ll match you to specialists who understand trades financing.

When unsecured might be better — and when asset finance is better

Unsecured is better when:

• Amounts are relatively small and the asset isn’t suitable collateral
• You need very fast access to cash and can accept higher cost
• You don’t want the asset specifically tied to finance contracts

Asset finance is better when:

• You’re buying vehicles, plant or expensive tools — the asset secures the loan and lowers cost
• You want to spread cost over time without large upfront lump sums
• Improved cashflow and potential tax advantages matter (check with accountant)

How UK Business Loans helps contractors

We match contractors to lenders and brokers experienced in building services finance. Our typical process:

1. Complete a short enquiry form (under 2 minutes) — Start Your Enquiry.
2. We match you with lenders/brokers who specialise in equipment, van and plant finance from around £10,000 upwards.
3. Partners contact you with tailored quotes so you can compare APR, fees and terms directly.

We don’t lend and we don’t give regulated financial advice — we introduce you to providers who can. Our service is free to use and no obligation. Ready to compare? Get Quote Now — Free Eligibility Check.

FAQs

How much cheaper is asset finance compared with an unsecured loan?

It depends on the asset and profile. For vans and plant you’ll often see asset finance a few percentage points lower in APR; for very large assets the difference can be substantial. Always compare APR and total payable.

Will asset finance affect my business credit file?

Yes — most asset finance and unsecured loans are recorded on business credit files. Late payments can affect your rating, so check reporting practice with the lender.

Can I claim VAT or capital allowances on equipment?

Possibly — VAT reclaim and capital allowance rules vary by asset and contract type. Speak to your accountant or check HMRC guidance for specific treatment.

What if my credit score is poor?

Specialist lenders and brokers work with imperfect credit profiles, but rates may be higher. We can match you to partners experienced with non‑standard credit histories.

How long to get a quote?

Many brokers respond within hours; some lenders can give initial pricing quickly and firm offers after checks and valuation. Submit a short enquiry to begin: Free Eligibility Check.

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Final summary and next steps

For contractors: if you’re financing vans, plant or higher‑value tool fleets, asset finance usually gives lower monthly cost and better terms than unsecured loans because the asset provides security. For small or urgent cash needs, unsecured loans may be appropriate despite higher cost. The best next step is to get tailored quotes — submit our quick enquiry and we’ll match you to brokers and lenders who specialise in building services finance: Get Quote Now — Free Eligibility Check.

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Compliance & trust: UK Business Loans is an introducer and not a lender, and does not provide regulated financial advice. We connect businesses with brokers and lenders who may carry out affordability or credit checks. All rates and examples on this page are indicative and for guidance only — actual offers depend on individual circumstances. For regulated financial advice please contact an FCA‑authorised adviser. Advertised finance products may be subject to terms, eligibility, and credit status. Our service commonly arranges finance from £10,000 and above.

1. Unsecured loan vs asset finance — which is cheaper for contractors?
Asset finance is usually cheaper for vans, plant and higher‑value tools because the asset secures the borrowing, while unsecured loans tend to carry higher APRs for the lender’s extra risk.

2. How much does asset finance cost for a work van?
Typical van asset finance deals commonly sit in the ~4–12% APR range depending on your credit profile, deposit and term, so get tailored quotes to see exact pricing.

3. What is APR and why should I compare it when looking for a business loan?
APR includes interest plus upfront fees and gives a single measure of total borrowing cost, making it the best way to compare different loan and asset finance offers.

4. Will submitting a quote enquiry affect my business credit file?
No — submitting an enquiry to UK Business Loans won’t affect your credit score, although lenders or brokers may carry out credit checks later if you choose to proceed.

5. How quickly can I get quotes for asset finance or an unsecured business loan?
Many brokers and lenders respond within hours to a UK Business Loans enquiry with initial pricing and can provide firm offers after checks and valuations.

6. Can I get finance for my contracting business if I have imperfect credit?
Yes — specialist lenders and brokers in our network work with non‑standard credit histories, but expect higher rates or stricter terms in many cases.

7. Do I need a deposit for hire purchase or finance lease deals?
Some HP and lease agreements require a deposit (commonly 0–20%), though low‑deposit or zero‑deposit options may be available depending on the asset and your profile.

8. Can I reclaim VAT or claim capital allowances on financed equipment?
Possibly — VAT recovery and capital allowance treatment depend on the finance structure and asset, so check with your accountant or HMRC guidance for your specific case.

9. What loan amounts does UK Business Loans typically arrange for contractors?
We commonly match businesses to lenders for asset finance and business loans from around £10,000 up to multi‑million facilities depending on the need.

10. Is the UK Business Loans enquiry form a loan application or commitment?
No — the short enquiry form is not an application and carries no obligation; it’s used only to match your business to suitable lenders and brokers for a free eligibility check.