Hire purchase (HP) is a finance type that links to an asset, that allows you to control and use the asset over an agreed term. During the term, rent or instalments are paid that cover the depreciation of the asset, and interest to cover capital cost. This enables you to spread the investment cost over the asset life, thus helping with cash flow and budgeting.
At the end of the agreed term, you have the option to purchase the asset outright and take full ownership. This type of finance is particularly common in industries where expensive machinery is required such as construction, manufacturing, plant hire, haulage and transport, engineering and professional services. It is also used to finance other capital requirements of a business, for example, smaller items, cars, printers.
The advantages and benefits of Hire Purchase
- Due to the financing being secured with the asset and the asset being owned by the financing company, the accessibility of financing is high.
- Hire Purchase allows companies and/or individuals to control and deploy assets without a significant impact on cash flow.
- Flexibility of repayment structuring is available to allow for seasonal.
- Financing asset purchases can be more tax efficient than standard-term loans. HP interest and charges can be offset against pre-tax profits, and VAT can be reclaimed.