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Hire Purchase Explained

Business funding to suit your needs

Business hire purchase
A business hire purchase agreement is a type of lease agreement which contains an option to purchase. An initial deposit is normally paid, the amount of which can vary significantly. The outstanding balance will then be paid off in monthly instalments.

Ownership passes after all the instalments have been made and the hirer exercises the option to purchase the goods. The option to purchase normally involves payment of a nominal fee which has no bearing on the market value of the goods. This is the key difference between hire purchase and contract purchase.

In the latter, the purchase fee is normally an optional balloon rental which reflects the market value of the goods at the time the term has been completed. You can either pay the balloon payment, refinance it or return the asset.

So how does hire purchase work?
Much like a contract purchase agreement a hire purchase contract will usually involve payment of a deposit on the asset or assets. The subsequent payments on the asset will depend on the agreed duration you choose for the hire purchase contract to run. The duration of the contract can vary to suit your budget and/or your business needs. Interest rates may be fixed or variable.

What are the benefits of a hire purchase contract?

* Regular instalments spread the cost over the course of the agreement;
* Hire purchase frees up capital for use elsewhere by your business;
* Low deposits are available;
* Fixed and/or variable interest rates are usually available;
* Your business may benefit from corporation tax savings;.
* The hirer can offset interest against taxable profits and claim allowances on the capital;.
* The security taken by the lender is the asset itself;
* You take ownership of the asset at the end of the agreement (subject to payment of all instalments and the option to purchase fee)

This type of funding appeals to companies that want to retain ownership of their assets, but spread the payment for them over a period of time.

Contact us today for a no obligation consultation about your business finance options.

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