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Hire Purchase

Hire Purchase

What is a hire purchase agreement?

Hire Purchase contracts or agreements were enacted in the UK in the latter half of the 19th Century. Such a contract is an agreement between the seller and the buyer allowing an item to be purchased and payments to be made regularly over an agreed timescale.

Initially developed for the purchase of household items, hire purchase agreements are now used for everything from vehicles to plant machinery and office equipment.

One of the many benefits of a hire purchase agreement is that when the hire term ends, you can purchase the item outright.

Hire Purchase

How does a hire purchase agreement help your business?

Waiting to replace broken or outdated equipment can be highly detrimental to your business. It can hold up work, stop you from taking new contracts and significantly affect your cash flow.

Asset finance can be challenging to navigate; however, hire purchase agreements are clear with the total amount to be paid and the payment schedule clearly described in the contract.

Spreading the cost of your machinery or equipment with a hire purchase agreement makes budgeting easier. It lets you divide the cost of your investment across the asset’s life, making it simpler to budget.

Hire Purchase is especially appropriate for obtaining machinery, vehicles, commercial and construction apparatus with a resell value.

Hire Purchase

Hire Purchase Considerations

Choosing to finance machinery, vehicles or equipment through hire purchase is a great way to spread your payments. However, there are other costs you need to consider. You own the item you purchase through hire purchase. Therefore, you are responsible for its upkeep, including maintenance costs and insurance.

You will need to factor in parts and labour costs if it stops working and your warranty or insurance does not cover the issue.

As you have full ownership of the equipment, machinery or vehicle at the end of the hire purchase term, you will also need to decide what you do at the end of its working life. Will you purchase a new piece on a new hire purchase agreement or use any remaining value in the item as a down payment for a replacement?

The answers to these questions may affect the point at which you seek to replace the item and whether you search for other machinery finance options.

Benefits of Choosing Hire Purchase

  • Keep control – For tax purposes, you own the asset, meaning you can usually claim capital allowances that may not be claimable with other forms of finance
  • Increased time to repay – hire purchase agreements enable you to spread the purchase cost across the asset’s lifetime
  • Reclaim VAT – giving you another financial incentive
  • Seasonality – structure your repayments to suit your needs. If your income fluctuates with the seasons, we can adjust your repayments to meet the needs of your cash flow
  • Greater tax efficiency – Offset the charges and interest of your hire purchase against pre-tax profits
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