Hire Purchase

What is Hire Purchase?

Hire purchase lets you spread the purchase cost of an asset, such as a vehicle, yellow plant machinery or vital business equipment, over a longer period with fixed regular payments. Hire purchase can be flexible based on the cost of your deposit, monthly payments and the final lump sum to suit your business needs.

Hire purchase is a popular form of asset finance that preserves business capital and provides business owners with an asset at the end of the agreement.

When you pay for the asset you’re buying using hire purchase there’s normally a deposit to be paid and the VAT is paid upfront – unless you take advantage of a 3-month VAT deferral.

When securing finance for assets such as cars, construction equipment and agriculture machinery under hire purchase, there’s usually a requirement for the VAT to be paid upfront. While it’s fully recoverable for VAT-registered businesses, this initial payment of VAT can put additional pressure on cash flow for businesses.

We can offer an option to defer the VAT for up to 3 months from the date of the finance agreement, giving you additional time to pay.

Remember, when opting for hire purchase, your business will own the item at the end of the agreement.

How does hire purchase work?

Hire purchase agreements must be taken out through a finance facility like a broker, bank or building society, or sometimes directly through the owner, like a car dealership.

In some cases, a hire purchase agreement will include a final payment to confirm the transfer of ownership. The payment period for larger hire purchase agreements typically ranges between 2 and 5 years, while smaller purchases may be shorter.

During the hire purchase payment period, you can use the asset as if you own it, but you cannot legally sell or dispose of an asset that you’re borrowing via hire purchase until you’ve paid for and then own it. If a business fails to make payments on time, it can run the risk of the assets being repossessed and returned to the original owner.

What are the advantages of hire purchase?

Some advantages of hire purchase agreements are:

• A useful agreement if you can’t afford to make a big payment upfront.
• Flexible payments are an option to reduce your monthly payments by paying a larger deposit or a large sum at the end of the agreement.
• At the end of the contract, you will own the asset.
• You can defer the VAT for 3 months with HP.
• Fixed rate loan so interest rates tend to be low.
• A facility can be structured to suit your budgeting plans.

Should your business choose hire purchase?

If your business needs an asset to expand but can’t afford to purchase the asset outright, then a hire purchase agreement could be the right option. Hire purchase allows you to spread the cost of the asset purchase over a longer period with fixed repayments to suit business needs.

An alternative option would be an unsecured loan which are great for businesses that don’t have any assets to put down as security.

Things to consider for hire purchase

Some things to consider when opting for using a hire purchase agreement:

Term length: Assets can be funded for up to 7 years

Useful life: Funding can be arranged over the useful life of the asset, sometimes with a balloon payment
Assets can be funded for up to 7 years

VAT: You can delay paying the VAT for 3 months through our VAT deferral option.

Seasonal business: We can structure repayments for businesses which have seasonal peaks and troughs throughout a financial year.

How to apply for hire purchase

MAF Finance Group can compare finance offerings from a wide panel of lenders to find the best option for you.

If you would like to get a quote or need further information, simply fill in the form and we will contact you. If you want to speak to someone directly you can call us on 0115 958 6872 and a member of our team will be happy to speak to you. Alternatively, email us at enquiries@maffinancegroup.co.uk.