Hire Purchase vs Lease Finance (Explained Simply)

Table of Contents

1. When Buying Outright Isn’t the Plan
   
2. What Is Hire Purchase?
   
3. What Is Lease Finance?
   
4. How Hire Purchase and Lease Finance Work
   
5. What Can You Buy or Lease?
   
   
6. What Businesses Use Hire Purchase and Lease Finance
   
   • Construction
     
   • Logistics
     
   • General Business
     
   • Plant Hire
     
   • Printing
     
   • Road Freight and Transport
     
   • Engineering
     
   • Professional Services
     
7. Pros and Cons
   
8. What Happens If You Pay Too Early?
   
9. Tax, Accounting, and Maintenance
   
10. How to Apply for Hire Purchase or Lease Finance
    
11. Other Types of Finance and How They Compare
    
12. Which One Should You Choose?
    
13. Final Thoughts
    

Key Takeaways

• Hire Purchase lets you spread payments and own the asset at the end.
  
• Lease Finance gives you access to equipment without owning it, with lower monthly payments.
  
• Both options can be used to acquire tools, machines, vehicles, and more.
  
• Different industries like construction, transport, and professional services benefit in different ways.
  
  

When Buying Outright Isn’t the Plan

There are ways to spread the cost and still get what you need to grow. That’s where hire purchase and lease finance come in. Running a business means using tools, vehicles, and machines that help you do the job. But not every business has a big pile of money ready to spend when it’s time to get something new. That’s okay. You don’t always have to pay for everything all at once. 

The best strategy would be to look for alternatives where, let’s say for xxx amount of money, instead of getting a vehicle in cash for delivery purposes, you can instead use the amount to get more, like 20% of it would be for the vehicle, another 20% would be for machines needed for manufacturing, and another 20% would be additional for office supplies and so on and so on.

Of course you still have to pay for them monthly but if the calculations are right, for this strategy you earn more than your liability expenses because you have more assets now.

This article will help you understand what they are, how they work, and which one might be better for your business.

What Is Hire Purchase?

Hire purchase is like a way to buy something slowly. You pay a deposit, then make monthly payments. After the last payment, the item is yours. That means you own it. It’s great for businesses that want to keep using the thing they’re buying for a long time.

Let’s say you need a new delivery van. With hire purchase, you put down a small amount first. Then, every month, you pay a set amount. When all the payments are done, the van belongs to your business. Easy.

What Is Lease Finance?

Lease finance is more like renting. You get to use something, like a machine or a truck, but you don’t own it. Instead, you make regular payments to use it. At the end of the lease, you can sometimes choose to return it or lease a new one.

Leasing is helpful if you want lower monthly costs or if you plan to use something for just a few years. It’s also useful if you want to upgrade often.

How Hire Purchase and Lease Finance Work

With hire purchase, the process starts with a deposit. Then you make regular monthly payments. These are fixed, so they don’t change. When the contract ends, you own the item. It’s simple and clear.

With lease finance, you agree to use something for a set time. You pay monthly, usually less than hire purchase. At the end, you can return the item or lease something else.

Understanding the paperwork is key. Make sure you know the payment schedule, the term length, and what happens at the end.

What Can You Buy or Lease?

Businesses often use them (HP and LF) for vehicles like vans, trucks, and company cars. It’s also used for big machines, computers, tools, office furniture, and even special equipment used in factories or construction sites. If it helps your business work better, there’s a good chance you can get it through hire purchase or leasing. 

To make it even more clearer, the types of industries, what they buy and what option they use is explained below.

What Businesses Use Hire Purchase and Lease Finance

Construction

Construction companies use hire purchase to get diggers, cranes, and other big machines they want to keep for years. This is a good option when a construction company is sure to use the same machine for a long time. Leasing works well too when they need something for a short job or don’t want to worry about repairs. 

There are cases when a construction company does not have the specific machinery required to do a specific job. For example, a reasonably new construction company needs a Mulcher Dozer for a large contract but is not sure whether they could utilise the machine for a long time. However, they need it for 1 year and 2 months but the rent for this machine is too costly in monthly payments and you are also liable for repairs.

Logistics

Logistics businesses can also have the same situation with a construction company where they use these tools to get lorries, trailers, and tracking devices. If they plan to keep the trucks long-term, hire purchase is best. If they want the newest models or change their fleet often, leasing works as well.

General Business

Offices and companies use these tools to buy or lease cars, desks, laptops, and printers. Leasing works well for fast-changing tech. Hire purchase works better for things that stay useful for a long time.

Plant Hire

Plant hire companies need lots of equipment like dumpers and lifts. Hire purchase is good for tools they rent out often. Leasing helps when they only need something for a short time. 

Printing

Printing companies often need big presses or finishing machines. Hire purchase helps when the equipment is used every day. Leasing helps them try new technology without big risks.

Road Freight and Transport

Big trucks, cooling trailers, and more can be bought with hire purchase or leased. Companies choose based on how long they want to keep them.

Engineering

Engineers need machines like lathes and cutters. If the tool stays useful for years, hire purchase is great. If the business needs to switch to new tech often, leasing is smarter. For engineering services, there are other ways as well that they can utilise, not just HP and LF such as unsecured business loans and asset refinance. This can be applicable as well with other industries.

Professional Services

Law firms, design agencies, and more use company cars and office equipment. Leasing is useful for changing tech since technology nowadays grows and develops at an exceptional rate. Hire purchase works for permanent setups such as desks, cabinets, and etc.

For more information about how HP and LF, contact us today!

Pros and Cons

With hire purchase, the big benefit is ownership. You end up owning the item after the last payment. It’s easier to plan your budget too because you know when it will be fully paid off. But you’ll need to handle any repairs, and the upfront costs can be a bit higher. There is also no balloon payment (large final payment) at the end of the term. You also won’t need to keep an eye out for your mileage, which will lessen your costs because you won’t need to pay for the excess mileage.

With leasing, you don’t need to pay a big deposit. Monthly payments are often lower. And if the equipment becomes old, you can just switch it for something new. But the downside is you don’t own what you’re paying for. Compared to hire purchase, you need to monitor your mileage; otherwise, going over the stipulated number will incur additional charges for you.

What Happens If You Want to Pay Early?

Sometimes a business wants to finish paying sooner than planned. Maybe they have extra money or just want to be done with the agreement. This is called paying early, or early settlement.

With hire purchase, you usually can pay off the rest early. When you do, you might not have to pay all the interest that was planned for the full term but this is only applicable if you have paid more than half of the contract value. This can save you money. 

But sometimes, the lender might charge a small fee for ending the agreement early and you also need to consider the settlement figure. It’s always a good idea to ask about this before you sign anything.

With lease finance, paying early works a little differently. Since you don’t own the item, you’re really paying to use it for a set time. If you want to pay early, you still need to pay 50% of the total amount or contract value, and this also includes the monthly installments and the final balloon payment.

Tax, Accounting, and Maintenance

With hire purchase, you might be able to claim capital allowances on your taxes. That means you can reduce your tax bill based on the item’s value. Lease payments, on the other hand, are often fully tax-deductible, which can help with cash flow.

Accounting is different too. Hire purchase shows the item as something you own. Leasing doesn’t. It stays on the books differently.

Maintenance matters. With hire purchase, the business takes care of repairs. With leasing, the leasing company does it.

How to Apply for Hire Purchase or Lease Finance

To apply, you’ll usually need to share your business info and show that your company can afford the payments. This might include bank details, credit history, and what asset you want to finance.

You can go through a broker or directly to a lender. A good broker makes things easy and helps find the best deal. Once approved, you sign the agreement, and then you can use the item.

Other Types of Finance and How They Compare

There are other ways to get funding, too. Asset-based lending means using your current equipment or stock as security. Invoice finance gives you cash based on what your customers owe you using your outstanding invoices. Business loans give you a lump sum to use how you want. VAT loans help you pay your tax bill in smaller chunks.

These tools work differently from hire purchase and leasing. If you don’t need a specific asset, they might be better. But for getting tools or vehicles, hire purchase and leasing often make more sense.

Which One Should You Choose?

Ask yourself some simple questions:

Do I want to own this item at the end? If yes, hire purchase is likely better.

How long will I need it? If it’s just for a short time, leasing may be smarter.

What can I afford each month? Leasing usually has smaller payments.

Think about what fits your business best. Some companies use both, hire purchase for big machines they’ll use for years and leasing for things that change quickly.

Final Thoughts

One gives you ownership. The other gives you flexibility. Both help you grow without draining your cash so you can use it for other important things, which is more efficient in running a business. Hire purchase and lease finance are great ways to get the things your business needs without sacrificing too much of your balance.

However, a little debt doesn’t hurt and it is even healthier for businesses to have debts.

Contact us today for more information and tailored advice based on your business needs!

Frequently Asked Questions

Q: Do I own the item right away with hire purchase?
A: No, only after the final payment.

Q: Can I own the item at the end of a lease?
A: Sometimes, if there’s a purchase option.

Q: Is leasing cheaper than hire purchase?
A: Usually yes, on a monthly basis.

Q: Can I end a hire purchase agreement early?
A: Yes, but there might be fees.

Q: Can startups use hire purchase or leasing?
A: Yes, but approval depends on credit and trading history.

Q: Do I need a deposit for hire purchase?
A: Yes.

Q: What happens if I miss payments?
A: The lender may take back the asset.

Q: Are there tax benefits with both?
A: Yes, but they differ.

Q: Can I get funding for used equipment?
A: Yes, with many lenders.

Q: Who handles repairs?
A: With hire purchase, you do. With leasing, sometimes the lender does.