Are you looking to invest into your business without compromising your cash flow? If so, you’ll want to know the differences between hire purchase and lease rental.
Both are financing options available to those who wish to purchase an asset without paying its full value upfront. However, they have different features that make them more suitable for different situations. Let’s take a look at what each of these options offers and how they can benefit you.
Hire Purchase Explained
A hire purchase agreement is when you enter a contract with a third party to pay off the cost of an asset over time. In return, you get the right to use and own the asset while making payments. At the end of the term, ownership is transferred to you once all payments have been made. The length of our hire purchase agreements can range from 1-5 years, depending on your needs and budget.
One advantage of a hire purchase agreement is that it allows you to invest into long-term assets without breaking the bank. It also allows you to keep cash in the business for other projects that you may have in the pipeline.
Another benefit of this agreement type is that the interest paid over the term is tax deductible!
Finally, with a hire purchase agreement you will have fixed monthly or quarterly payments; allowing you to budget better.
Lease Rental Explained
A lease rental agreement is similar to a hire purchase agreement but differs in one key way. Ownership is not transferred at any point during the term of the agreement. Instead, when you enter into a lease rental agreement with a financier, they retain ownership over the asset during your term.
You will then make monthly or quarterly payments over your chosen period. When all payments have been made, you will then be required to return possession of the asset back to the financier.
There are also significant tax benefits to be taken advantage of with this agreement type. Did you know that with a lease rental all rentals are fully deductible against your company’s corporation tax bill? You will also be pleased to know that VAT spread and paid with rentals. As opposed to paying upfront like you would with a hire purchase agreement. Read more about these benefits on the HMRC website.
Both hire purchase and lease rental are viable financing options available if you’re looking to acquire an asset without paying its full cost upfront. But which one should you choose? Ultimately it depends on your needs. If you need permanent possession of a timeless item, then a hire purchase is probably the way to go! Whereas lease rentals are ideal for depreciating assets as you can always renew your equipment at the end of the agreement.
Contact Us
To find out which agreement is best suited to the needs of your business, please don’t hesitate to get in touch. Our expert team will be able to guide you in the right direction and provide you with a FREE no obligation quote. We can finance just about anything for any business ranging from £1,000- £10M+. Give us a call today on 01494 611 456, or send an email to hello@westwon.uk.