With so many asset finance options available, it’s important to have a clear understanding of how each type of option works. We explain further what hire purchase offers and what you can use it for.
Hire purchase, also known as HP, is a type of lease agreement which contains the option to purchase the asset it’s taken out against.
Hire purchase allows your business to purchase and own the asset without paying the full value immediately. This solution to purchasing assets is ideal for businesses who want to prevent tying up vital capital that they need now.
Usually an initial deposit is required, the amount will vary depending on the lender’s terms, however, you can typically expect to pay around 10% of the purchase price. The remaining balance plus interest, is repaid over a fixed term from one to five years by monthly instalments. The duration of the agreement can be set to suit your budget and business needs, to ensure that your monthly repayments are affordable.
Providing that you meet the agreed repayments, on completion of your hire purchase agreement, the ownership of the asset transfers to you.
It’s important to note that the asset is likely to depreciate over the period, with hire purchase, you are responsible for the upkeep and maintenance of the goods. As the ownership of the asset is transferred at the end of the agreement, it’s imperative that you look after the asset to retain as much value as possible.
Hire purchase funding will appeal to businesses that wish to retain ownership of the asset, whilst preventing an impact on cashflow.