Hire purchase is regularly used to finance significant purchases which have an expected working life that is greater than the financing period, such as construction equipment, vehicles, machinery, and major IT infrastructure. Hire purchase allows the staged acquisition of an item, typically through payment of a deposit and an equal number of regular fixed payments over a given time frame.
You are in complete control of the procurement process, so you select the manufacturer / supplier you prefer, you agree with them the exact specification of the goods that you need, including the upgrades or attachments which make is specific to you and your business.
An item which is purchased using the hire purchase finance model will immediately be a fixed asset of your business and as such you are able to claim the capital allowances, with ownership transferring to you upon settlement of a final option to purchase, usually payable with the final instalment. Where VAT would be payable on the purchase price, it is charged upfront at the beginning of the agreement as if an outright purchase had taken place.
Hire purchase helps growing organisations to acquire substantial items of equipment which are fundamental to their business but often out of reach in terms of capital expense. Using a hire purchase agreement allows you to benefit from the use of the item whilst paying for it in financially manageable steps. All our Hire Purchase agreements are fixed rate and fixed term, so you won’t have any hidden increases and can budget effectively.
We do offer Hire Purchase agreements with a final capital repayment, sometimes called a ‘balloon payment’; which means that the repayments during the initial agreed term are much lower. The long life nature of the asset often means there is a value at the end of the initial term and the equipment can be sold or part exchanged against a new asset to repay the final capital repayment amount. Or you can simply pay the final capital sum along with the option to purchase fee and the equipment is yours.
As hire purchase spreads the cost of a capital purchase, the repayments do attract a level of interest (which you can claim as a business expense) and so over the lifetime of the agreement you will end up paying more than the original ‘cash price’ of the item. However, as we support businesses with our own money and a range of flexible funds that we manage on behalf of others, we can often beat traditional lenders rates or offer more flexible terms and repayment cycles to meet your needs and unique circumstances.
To discuss hire purchase as a means of financing a major purchase for your business, please contact us today.