What is a hire purchase?
A hire purchase is when you pay in instalments for your required assets. This normally includes an initial down payment and interest as you pay off the remainder of the cost. Hire purchase is a type of asset finance and although it is similar to equipment leasing, overall it is simpler because hire purchase works up to full ownership of the asset once the payments are complete- which leasing does not. During the agreed contract time the asset becomes the responsibility of the lessee although they do not legally own it. This is an ideal option for businesses who need to stagger the payments for an asset they one day want to have full ownership of.
How does a hire purchase work?
Hire purchase normally involves a deposit and then monthly payments of the remainder of the cost. The agreed monthly payments also include interest. Hire purchase allows you to be flexible with the deposit so it can benefit those who can’t afford a large initial payment. This does mean VAT needs to be paid upfront however it should be noted that most funders will offer products like VAT Deferrals. This will help to manage cash flow of the purchase. VAT Deferral is when the funder will cover the cost of the VAT upfront and then allow the customer to pay off the VAT claim 1-3 months later. During the contract time you, the lessee has full access and responsibility of the asset but are not the owner. At the end of the agreed payment term, you can usually pay a fee to then secure full ownership of the asset. Hire purchase does require a deposit and the monthly payments can be relatively high however they do remain the same for the length of the contract. This type of payment plan allows businesses to access equipment or vehicles that will help their business develop but without requiring to pay in full. Hire purchase is a long term financing option.
What can I use a hire purchase for?
Hire purchase is an effective way of purchasing new or used cars and vehicles, machinery or other expensive equipment necessary for your business. Hire purchase is perfect for those larger investments that paying all in one go for is not feasible. The monthly payments work up to full ownership or the asset at the end of the lease so hire purchase is a sustainable way for businesses to make big investments that can help them develop and grow. Hire purchase is best for businesses looking for a long term financing option and one that will lead to ownership.
Why should I choose a hire purchase?
You could consider a hire purchase if you are looking to invest in expensive assets for yourself or your business and need to spread the cost over time. Hire purchase makes it easier for you to budget for big expenses so this can really be utilised to suit the needs of your business. It is especially good for acquiring machinery, vehicles or construction
equipment that is a big financial investment. As hire purchase can lead to ownership it is a good way of making and managing your long term investments.
The knowledgeable team at Parkins Finance can advise you on how best to manage your payments and budget whilst securing the equipment that you need. We understand that every business is different and committing to long term investments can be daunting so our experts will work with you individually to get the best financing option for you.