Hire purchase works by letting you spread the expense of buying an asset over an agreed amount of time in instalments. Then, once you’ve repaid the funder in full, the equipment is yours.
What is hire purchase?
Hire purchase is a type of financing that allows you to acquire assets by making monthly payments. When you take out a hire purchase loan, you legally acquire the asset once all of the payments have been made; however, in some cases it will appear on your balance sheet at the start of the term.
Hire purchase explained
Hire purchase is a kind of asset finance. It’s comparable to equipment leasing, but less complicated (and perhaps less flexible) in the end.
Hire purchase is similar to purchasing a property and paying for it in instalments, as a personal customer might for a car. Normally a 10% deposit and all the VAT is paid upfront.
Unlike leasing, with hire purchase your business owns the item, but that means there are a few other things you need to consider:
Will the item be required for your business in the long term?
A hire purchase might be an excellent option if the answer is yes. However, leasing may be the preferable option if you only need it for a short time or aren’t sure.
Will the asset hold its value?
Items that depreciate are usually leased rather than bought, but relating to the first point above, if your business needs it for the foreseeable future, that could be less important.
Does the technology move on quickly?
If the answer is yes, you may want to consider alternatives to hire purchase. If you need equipment finance, there are other options available. For example, you might consider a finance lease similar to a long-term loan but with no ownership stake after the term. On the other hand, operating leases are a popular choice for more flexibility because you can often get regular upgrades and maintenance included.
It’s quick and free! Just fill in the form with some basic information about your business and and how much you need. We’ll be in touch within 24 hours (Monday-Friday).