Hire purchase is a way to finance buying a new or used asset. Hire purchase allows you to buy an asset and pay off the value of the asset in monthly instalments, with the loan secured against the asset. While you are still making payments, during the term, you are hiring the asset and as such, you do not own the asset until the entire repayment is made. Because you do not own the asset, you are not allowed to sell or dispose of the goods without the lender’s permission.
In most cases the lender will require an initial deposit – typically 10% of the purchase price and then a monthly instalment paid over 1-5 years and then a final purchase price..Since the finance is secured against an asset the interest rate is typically better than that of an unsecured loan.
It is a great way to access an asset in your business and by spreading the cost over time it is easier to budget for.
Spread the cost over a period of time rather than paying a large amount all at once.
Hire purchase has lower interest rates than other options, as interest is fixed for the duration of the repayment term.
After the last instalment you have the option to own the equipment outright.
In some circumstances the cost of maintenance is included in the agreement terms as well.
1. Application: Choose the asset you would like to purchase and find a supplier.
2. Funding: Pay the required deposit (usually 10% of the cost). The lender then pays the supplier the remainder.
3. Exit: Pay back the facility over a period of between 12 – 84 months at an agreed rate with an option to acquire the asset outright at the end of the term.
This is variable from lender to lender. As a general rule of thumb, the ‘harder’ the asset, the easier and lower cost it is to finance. ‘Hard-ness’ is effectively defined by having a resell value; vehicles, machinery, construction and commercial equipment with a resell value should be easy enough be to raise H/P on whereas, as an example, software will be impossible.
Whilst your company financials are important, the most important documents will be details of the asset including all information such as serial number etc. and then you will be required to provide a proforma invoice for the asset from your supplier.
Furthermore, a valuation and surveyors report will have to be done, which can take anywhere from 2 weeks to 2 months, along with lawyers doing the relevant documentation and checks.
It depends from lender to lender, but because this financing is predominantly based on the quality of the asset and your own timeframes to order and delivery with the supplier. It is quite common that a supplier can be paid in a matter of days from application.
During the term of the facility, you are hiring the asset from the financier, you only own the asset once you have completed all the repayments.
Hire purchase and leasing are both financing options available to businesses and individuals in the United Kingdom. There are a number of key differences between the two options that should be considered before making a decision.
Sale and leaseback, and asset refinancing are both ways that
Funding Bay Limited is an FCA authorised and regulated finance broker, Reg No. 950847. Funding Bay Limited may receive payment(s) or other benefit from the finance provider if you decide to enter into an agreement with them.
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