Some HPs include the option of a balloon payment – your monthly payments will be cheaper over the term, but at the end you’ll make a larger, final payment to purchase the asset. Alternatively, you can arrange to clear the balloon as part of selling the asset, and upgrade to newer equipment, or redeploy the freed up working capital elsewhere in your business.
HIRE PURCHASE
Hire purchase (HP) allows you to spread the cost of buying an asset, rather than pay for it all at once and use up your working capital.
Interest rates and monthly payments are fixed, which can help with budgeting. Terms can range from 1 to 7 years, depending on your requirements. At the end of the term, when all of the payments have been made, the asset is yours.
Hire purchase agreements are most commonly used when buying vehicles, equipment and machinery.
Deposits can be as little as just the VAT, which can be paid upfront, or deferred until you have claimed it back from HMRC. With HP you can claim tax relief on the cost of the asset, through capital allowances (Please seek specialist advice from your accountant).
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