Hire purchase is a credit agreement that can help businesses to spread the costs of buying expensive assets.

You start by putting down a deposit with a hire purchase provider. You’ll then agree to pay regular payments for an agreed number of years, which include interest.

You’re allowed to use the asset as you go. But you’ll only be hiring it. You can’t become the official owner until your monthly repayments are complete. You might be asked to make an optional, one-off purchase payment at that point.

Hire purchase can make high-value assets more accessible to business owners. It’s a way to gradually pay for items over time, rather than dealing with large upfront costs.

It can cover a wide range of things. These may include:

• Company vehicles - cars, vans or heavy goods vehicles.
• Essential machinery - production line kit, tractors, or construction drills.
• Business equipment - processing tools, or even green energy improvements.

For these reasons, hire purchase is often used in sectors like construction, transport, engineering and manufacturing.

There are plenty of places to shop around for hire purchase. These include:

• Finance providers
• Equipment manufacturers
• Specialist brokers

Whichever route you take, interest rates can play an important role in hire purchase agreements. Depending on the provider, you may have the choice of paying a fixed or variable rate each month.

• Fixed interest. This means your rate won’t change from month to month. It could give you more certainty over future repayments.
• Variable interest. Your interest rate might go up or down, depending on factors including the Bank of England Base Rate. This may be an option if you want the flexibility to settle the agreement early.

You might be able to choose from different repayment terms too. These could last 12 months or stretch across multiple years. It’s all about finding the right solution for your company.

Just remember that there are often certain conditions to meet first. For instance, you may be asked about your company turnover, trading history, and the asset’s age.

As with any type of asset finance, it’s useful to consider both the advantages and disadvantages of hire purchase. Here are some key things to bear in mind.

Advantages of hire purchase

From cashflow support to flexible repayments, there are lots of potential benefits:

• Breaking down cost barriers. Hire purchase can give companies access to equipment or vehicles that would otherwise be out of reach.
• Option to gain ownership of assets. You could take control once your credit agreement ends.
• Choice over interest rates and repayments. Many providers offer flexible repayment terms, plus fixed or variable interest.
• Supporting cash flow. Hire purchase could remove the financial strain of buying assets outright.
• Quick applications. Some providers may be able to set up hire purchase agreements in a matter of days.
• Variety of assets. Everything from cars to renewable energy equipment might be covered.

Disadvantages of hire purchase

Hire purchase may not be right for every company. There are possible drawbacks to consider too:

• Temptation to overstretch yourself. Hire purchase spreads the costs of expensive assets. But it doesn’t remove them completely. You’ll still need to pay regular instalments.
• Interest costs. You could end up paying more for an item due to the added interest.
• Long wait to take ownership. You can’t become the asset’s owner until all repayments are made.
• Depreciation. An asset could gradually lose value during your hire purchase term.
• Risk of repossession. Providers may take assets back if you fail to keep up with your repayments.

Conditional sale and hire purchase agreements are very similar. They can both help businesses to split large asset costs into manageable instalments. However, there is a key difference between the two at the end of the repayment term. 

With hire purchase agreement, you aren’t always obliged to accept ownership of the asset. Ownership may be optional and typically requires a final one-off payment to complete the purchase.

In contrast, a conditional sale agreement commits you to owning the asset. Under the terms of your contract, you’ll automatically become the owner once all repayments are completed.  

Lombard Hire Purchase offers a flexible way to buy vehicles, machinery or equipment for your company. You could choose a fixed or variable interest rate, plus payment terms of between 12 and 84 months.

Explore Hire Purchase from Lombard