Looking to acquire new tools, machinery, or vehicles for your business? With hire purchase, you can spread the cost of essential assets over time, helping manage your cash flow while gaining full use of the equipment.
Compare hire purchase offers today to find the best deal for your business.
A hire purchase agreement is a type of asset finance. It involves a lender buying the asset on behalf of your business. You then repay the cost of the asset in monthly instalments over an agreed term, typically between 1-5 years. The payments are calculated based on the asset’s price, interest rates, and sometimes its projected future value.
Once the final payment is made, you can choose to take full ownership of the asset, return it to the lender, or in some cases, sell it and receive a rebate depending on the final sale price.
This flexible financing solution allows you to invest in your business without needing to pay the full amount upfront, keeping your cash flow healthy and manageable.
Hire purchase agreements are secured loans.
Here’s a step-by-step for how hire purchase works:
| Advantages of hire purchase | Disadvantages of hire purchase |
|---|---|
| Hire purchase requires a lower upfront payment compared to outright purchase, meaning you can preserve capital for other operational needs. | A hire purchase agreement will cost more in the long term than purchasing outright due to the interest on the loan. |
| Monthly instalments remain fixed throughout the hire purchase term, so you can forecast your cash flow and budget effectively. | If the asset being financed depreciates before the end of the hire purchase term, you may end up paying more than the asset's value. |
| If your business is eligible, the monthly payments you make for the asset can be considered a business expense, which can lower your Corporation Tax. Consult with your accountant to see how this applies to your specific situation. | Unlike leasing, hire purchase agreements typically offer less flexibility for early termination or upgrading to newer assets. |
Hire purchase can be used to finance a wide range of business assets, including:
Vehicles
Plant & machinery
Office equipment
Imagine you're looking to acquire a new delivery van for your expanding catering business. Here’s how a typical hire purchase agreement might unfold, broken down into simple steps:
1. Choosing your asset
You decide on a van that costs £20,000. It’s the perfect fit for delivering your goods efficiently.
2. Searching for finance
Using your Capitalise for Business account, you search the vehicle registration and receive several finance offers showing potential monthly costs.
3. Applying for hire purchase
You choose the best finance offer and apply for a hire purchase agreement with the lender.
The lender assesses the financial health of your business and approves your application.
4. Receiving the offer
The terms of the hire purchase are laid out:
5. Monthly payments
Your monthly payment comes to approximately £368, covering both the principal and the interest.
6. End of the term
After 4 years, you've paid off the van in full. The lender transfers ownership to you officially. You now own the van outright without needing to make any further payments.
By the end of the term, the asset is yours, supporting long-term business growth without overwhelming your cash flow.
This example shows how hire purchase can help you manage large expenses by breaking them down into manageable payments, while you continue to use the asset in your business operations from day one.
There are factors impacting the cost of a hire purchase agreement. Here are some tips that could help lower repayments:
While hire purchase is a useful way to finance business assets with the aim of ownership , it's important to consider other financing options that may suit different business needs and situations. Below is a comparison table detailing alternatives to hire purchase:
| Financing option | Ownership | Monthly payments | Ideal for | End of term options |
|---|---|---|---|---|
| Asset finance (loan) | Full ownership from the start | Varies based on loan terms and interest rates | Businesses looking to own assets outright while spreading the cost | Complete payments and retain ownership |
| Operating lease | No ownership, the asset is returned | Lower, covers only asset use | Businesses needing short term or specialised equipment | Return, extend the lease, or upgrade |
| Finance lease | No immediate ownership, there is an option to buy later | Higher, aims to cover full asset value | Businesses wanting to spread the cost and potentially own the equipment | Buy the asset, extend the lease, or return |
| Contract hire | No ownership, includes services like maintenance | Fixed, includes maintenance costs | Businesses needing fixed-term vehicles or equipment with maintenance | Return the asset, potential penalties for excess use |
| Hire purchase | Ownership transferred after final payment | Higher, contributes towards ownership | Businesses aiming for ownership with a predictable payment plan | Own the asset outright, or sell it back |
At Capitalise, we partner with over 100 UK lenders to help you find the best business finance solution. With one application, you can compare hire purchase offers from multiple lenders, ensuring you get the best deal for your business.
Here’s how to get started:
Sign up for free today and find the hire purchase agreement that best fits your business.
Capitalise is a UK based platform, our mission is to help businesses to take control of their financial health. We support business owners through our FCA regulated platform, an easy way for businesses to access over 100 lenders and compare their loan products. Our advanced platform makes intelligent matches and ranks lenders, based on their past successes, to help businesses select the best funding solution.
Capitalise also enables businesses to check their own Experian business credit score to better understand their financial health. Plus businesses can check the credit profiles of the companies they work with to reduce risk.
Contract hire involves leasing a vehicle for an agreed period, with fixed monthly payments and no ownership of the vehicle at the end. Hire purchase, on the other hand, allows your business to purchase an asset through instalment payments, with ownership transferring upon completion of payments.
You won’t immediately own the asset with hire purchase. Your business is essentially renting the asset until it's paid off the entire amount agreed upon. Once all payments, including any possible final lump sum (often called a balloon payment), are made, the ownership of the asset transfers from the lender to your business.
At the end of a hire purchase agreement, your business typically makes a final payment, which might be higher than your regular monthly payments. Once this is completed, the asset becomes the business’. In some agreements, you might also have the option to return the asset if it is no longer needed.
You may be able to settle a hire purchase agreement early by paying off the outstanding balance and any additional fees required for early termination. This can be a good option if your business wants to own the asset sooner or if you need to exit the agreement for financial reasons. However each lender is different. Whether you’ll be able to repay early will be detailed in your specific agreement.
Monthly payments depend on several factors: the total price of the asset, the amount of deposit put down, the length of the term, and the interest rate. Payments are typically fixed, which means they won’t change over the duration of the agreement, making it easier for your business to budget.
Both hire purchase and leasing are options for acquiring assets like company cars or vans. Understanding the key differences between these two financing methods can help you make an informed decision.
Choosing between hire purchase and leasing will depend on your business’s financial goals, how frequently you intend to upgrade assets, and your preference regarding asset ownership.
