Hire purchase (HP) is a well-established method of financing the purchase of assets by businesses. Under a hire purchase agreement you pay an initial deposit, with the remainder of the balance and interest repayable by monthly instalments over an agreed term.
The finance company will purchase the asset on behalf of you or your company and own it until the final instalment is paid. The monthly repayment is determined by the sale price of the asset, the amount of deposit paid and the length of the contract.
What are the benefits of hire purchase?
- Better cash flow – the asset can be used immediately whilst your repayments are spread, giving your business a better cash flow.
- Easily arranged – HP agreements are easily negotiated and available.
- Tax and cost efficient – monthly repayments don’t attract VAT and your business can claim tax relief on the interest charges. As the asset is classified as an asset, the depreciation can be written off against taxable profits.
- Easy to budget – your financial commitment and monthly repayments are clearly defined from the outset.
- Security – HP is secured on the asset that has been financed so no additional security is normally required from you or your business.
- Flexibility – repayments can be structured to allow for seasonal fluctuations in business.
- Low risk – HP is not repayable on demand unless your business defaults on the agreement.
To find out how we can help with your hire purchase requirements please call us today.