Hire purchase and leasing are two financing options available to businesses and individuals in the UK. Each comes with distinct differences that should be carefully evaluated before making a decision.
What is a Hire Purchase?
Hire purchase (HP) is a type of business finance that allows a company to acquire an asset while spreading the cost over a set period, rather than paying the full amount upfront.
The business pays an initial deposit followed by fixed monthly payments over an agreed period. During this time the business has full use of the asset but does not officially own it until the final payment is made. Once all payments are completed, ownership of the asset is transferred to the business, making it a straightforward way to acquire essential equipment without a large upfront cost.
Benefits of a Hire Purchase
✔ Reduced Monthly Payments: It removes the need for a large upfront payment- meaning businesses that require expensive equipment but lack the immediate funds can spread the payments over time.
✔ Access Better Equipment: Businesses are able to access higher quality or newer equipment that may have otherwise been unaffordable. Instead of stretching your budget to buy more expensive equipment outright, you can spread the difference- often for just a little more per month than settling for older, less efficient options.
✔ Improve Cash Flow: A one-off payment for equipment could have a negative impact on your cash flow and create financial strain on the business.
✔ Fixed Repayments: A fixed rate hire purchase agreement means you interest rates will remain the same throughout the agreement. This can allow businesses to budget and know exactly what they are required to pay each month.
✔ Tax Benefits: You are able to claim depreciation on the asset. It can reduce your tax liability due to depreciation being a non-cash expense.
What is a Leasing Agreement?
Leasing is a financing agreement where the lender agrees to provide the use of an asset for an agreed period of time in exchange for regular payments, instead of having to buy it outright. At the end of the leasing agreement, the lessee is given the option to purchase the asset for a pre-agreed price or it can be returned at the end of the term.
Benefits of a Leasing Agreement
✔ Preserve Capital: Leasing assets avoids the need to part with a large upfront payment, helping you to conserve cash and maintain a strong balance sheet.
✔ Flexibility: Finance leases can be structured to meet your specific needs, including the term of the lease, the repayments, and the option to purchase the asset at the end of your term.
✔ Tax Benefits: In some cases, the rental payments made under a finance lease can be tax deductible, which can help to reduce your tax liability.
✔ Predictable cash flow: Payments are usually fixed over the term of the lease helping you to manage cash flow more effectively
Should you use a finance lease or hire purchase?
- Ownership: In a finance lease the funder retains ownership of the asset and you have the right to use the asset for the duration of the lease. In a hire purchase, you have the option to purchase the asset at the end of the agreement.
- Responsibility for maintenance: In a leasing agreement, the funder is usually responsible for maintaining the asset and any repairs or replacements that may be required. In a hire purchase, that responsibility usually lies with you.
- Termination of the agreement: In a lease you would usually be required to return the asset to the funder at the end of the lease. In a hire purchase you have the choice whether to purchase the asset for a pre-agreed price or to return it to the lender.
At Moorgate Finance, we understand that every business has different financial needs when it comes to acquiring essential equipment. Whether you’re looking for long-term ownership through hire purchase or prefer the flexibility of leasing, we can help tailor the right solution for you.
With our industry expertise and access to a wide range of lenders, we ensure you get the most cost-effective and tax-efficient finance option to support your business growth. If you’re unsure which option is right for you, our team is here to guide you through the process.
Give us a call on 01908 92 62 62 or head to www.moorgatefinance.com/apply-now to start the conversation.