Asset finance is a powerful tool for businesses looking to acquire equipment, vehicles or other assets without paying the full cost upfront. It helps preserve cash flow, improve budgeting and often offers tax benefits. But not all asset finance options are the same, understanding the differences between the main types can help you choose the right one for your business.
Hire Purchase
Hire purchase is a straightforward and common form of asset finance. It allows you to spread the cost of an asset over a set period through regular payments. Once the final instalment is made, the ownership of the asset transfers to your business.
How It Works
You pay an initial deposit (often around 10%) and then make fixed month payments over the agreed term. These payments cover the asset’s full value, plus interest. At the end, you usually pay a small final fee- called the Option to Purchase (OTP)- which then transfers full ownership of the item to you.
Why Choose It?
- You want to own the asset at the end
- You prefer fixed monthly payments for easier budgeting
- You’re looking for flexible options such as term, frequency and size of instalments
- VAT registered businesses can reclaim eligible VAT on the purchase
Things to Consider
- You are responsible for the maintenance and insurance of the vehicle
- During the term of the finance agreement, the asset cannot be sold without permission from the lender
- The full value of the asset is paid of over time which can mean higher monthly payments than leasing or buying outright
Finance Lease
A Finance Lease is a flexible way for businesses to access the equipment or vehicles they need without the upfront cost of buying them outright. While you won’t own the asset at the end of the lease, you may be able to extend the lease, upgrade to something new, or return the asset to the owner or their agent.
How It Works
Once terms are agreed, you’ll pay an initial rental amount, this acts as a deposit. You’ll then make regular payments over the lease period. When the lease ends, you won’t automatically own the asset. Instead, you can choose to extend the lease, upgrade to new equipment, or return the asset – depending on what suits your business best.
Why Choose It?
- You need long term access to an asset without ownership
- You want access to a high value asset without needing to purchase outright
- Lease payments are often fully deductible as operating expenses, offering tax benefits
Things to Consider:
- Ownership never transfers to you, and you are locked into the lease agreement for the full term, even if the asset no longer meets your needs or you no longer wish to use it
- You’ll usually be responsible for insurance, maintenance and servicing
- At all times the lender owns the asset, and it cannot be sold
Operating Lease
An operating lease is more like renting, you’ll make regular monthly payments to use the asset over an agreed term. While you won’t own the asset at the end of the lease, you may be able to extend the lease, upgrade to something new, or return the asset to the owner or their agent.
How It Works
You lease the asset for a defined period, usually much shorter than its full working life. At the end of the lease, you simply return it. Maintenance and servicing may be included, depending on the agreement.
Why Choose It?
- You want to avoid the hassle of ownership, resale or commitment
- You prefer lower monthly payments and more flexibility
- Lease payments are often fully deductible as operating expenses, offering tax benefits
- Good for short term need or equipment that becomes outdated quickly
Things to Consider
- You won’t gain any residual value or opportunity to resell it
- It is the obligation of the customer to maintain the asset and ensure it remains in good condition and insured
Choosing the Right Option
Asset finance can be a smart way to equip your business for growth without putting strain on cash flow. But choosing between hire purchase, finance lease or operating lease depends on your unique goals and how you plan to use the asset.
That’s where Moorgate Finance can help. Our dedicated team of Account Managers take the time to understand your business in detail- not just the numbers, but your growth plans, industry pressures and operational needs. We’ll work with you to identify the most suitable asset finance option, ensuring it supports both your short-term cash flow and long-term objectives.
Whether you’re looking to own your assets outright or keep things flexible, our team is here to make the process straight forward, transparent and tailored to you.
Get in touch today or apply now and let us find the best fit for your business.
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