What is Hire Purchase?

Understanding hire purchase

Hire Purchase is a popular method of acquiring business assets without paying the full amount upfront. It's a type of asset finance that allows companies to spread the cost of equipment including vehicles, machinery, or asset across a variety of sectors over a set period, with ownership passing to the business once the final payment has been made.

This funding option can be a great option for businesses that need to invest in key assets to grow or operate effectively but want to avoid putting pressure on cash flow. While you don’t own the asset during the repayment term, it will become yours at the end of the agreement.

How does hire purchase work?

With hire purchase, a finance provider purchases the asset, and you then enter into a contract to repay the amount over an agreed term through monthly instalments. These payments include the original asset value plus interest.

The different between hire purchase and finance leasing is whereas with leasing the asset is returned at the end of the term, a hire purchase agreement includes the option to take full ownership after the final payment.

You can use the asset throughout the contract, although legal ownership remains with the finance provider until all payments are completed.

What can I use hire purchase for?

Hire purchase is well-suited for funding physical business assets particularly those with long-term value and importance to day-to-day operations. Common examples include:

Commercial vehicles: From vans and trucks to company cars, hire purchase allows businesses to build or upgrade their vehicle fleet without large upfront investment.

Construction and agricultural machinery: Bulldozers, excavators, tractors, and other heavy-duty plant can be financed through hire purchase, spreading the cost while maintaining full use of the equipment.

Manufacturing equipment: Production lines, CNC machines, and other tools critical to output can be obtained and used immediately while being paid off over time.

Technology assets: Computers, servers, and phone systems can also be financed this way, particularly where the business plans to own the technology outright rather than lease or upgrade regularly.

Advantages of using hire purchase

Eventual ownership: Unlike leasing, hire purchase gives you the option to own the asset outright once the term ends.

Cash flow protection: You avoid the need for large upfront costs, freeing up working capital for other parts of the business.

Fixed monthly costs: Repayment terms are usually agreed in advance and remain consistent throughout the contract, making budgeting more predictable.

No need for additional security: Since the asset itself serves as collateral, you may not need to offer personal or business guarantees.

VAT Deferral: A VAT Deferral allows you to defer the VAT payments for 3 months, providing you extra time to make your VAT payment.

Flexible structures: Agreements can be tailored with seasonal payments, balloon payments, or initial deposits to suit your cash flow and financial goals.

How can I apply for hire purchase?

MAF Finance Group can compare offerings from a wide range of banks and alternative funders to identify the solution most suited to your business needs.

If you would like to get a quote or want further information, simply fill out the form and we will be in touch. If you want to speak to us directly, you can call us on 0115 958 6872 and a member of our team will contact you. Alternatively, email us at [email protected].