Hire purchase or finance lease: which suits your business?

If your business needs a van, a machine or other equipment, you do not have to pay the full price upfront. Two common ways to spread the cost are hire purchase and finance lease. They look similar, but they work differently.

Hire purchase

With hire purchase, you pay an initial deposit and then regular payments over an agreed term. Once the final payment is made, you own the asset. Until then, the lender owns it.

Hire purchase suits assets you intend to keep for their working life, such as vans, plant and production machinery.

Finance lease

With a finance lease, the lender buys the asset and you pay to use it over the term. The lender keeps ownership. At the end of the term you may be able to return the asset, continue to lease it, or in some cases sell it on the lender's behalf and receive a share of the proceeds.

A lease can suit equipment that you replace regularly or that goes out of date quickly, such as IT equipment.

Points to compare

• Ownership. You own the asset at the end with hire purchase. With a lease you normally do not.
• VAT. With hire purchase, VAT is usually dealt with at the start. With a lease, VAT is usually charged on each payment. This affects cash flow.
• Deposit and monthly cost. The structure of payments can differ.
• Flexibility at the end. Think about whether you want to keep, upgrade or return the asset.
• Tax. Treatment of payments and allowances differs between the two. Please ask your accountant what suits your business.

What lenders look at

Lenders consider the asset, who is supplying it, how long you have been trading and your accounts. New businesses can often get asset finance, since the asset itself provides security, although a deposit or a director's guarantee may be asked for.

Used equipment

Used assets can be financed as well as new ones. Lenders will look at the age, condition and value of the asset, and may ask for more details if it is specialist equipment.

Find out more

Read more about asset finance, or see our local pages for Basildon and Hertfordshire.

Talk it through

If you would like to compare hire purchase and a lease for a particular asset, get in touch.