Hire purchase

Q: What is the difference between hire purchase and leasing?

With hire purchase you own the asset once the final payment is made. With leasing you rent the asset for a term and generally hand it back at the end (or upgrade), never owning it. HP suits assets you want to keep; leasing suits assets you replace often.

2 min read

Own at endTitle transfers on final payment

1–5 yrsTypical term

In plain terms

Hire purchase (HP) lets a business acquire an asset — a van, a CNC machine, a commercial oven — without paying the whole cost up front. The finance provider buys the asset and the business "hires" it, paying a deposit followed by fixed monthly instalments. Crucially, ownership only passes to the business once the final instalment (and usually a nominal "option to purchase" fee) is paid.

Until that point the asset legally belongs to the finance company, even though the business uses it day to day and shows it on the balance sheet. This is the key distinction from leasing, where you typically never own the asset. HP is most common for tangible, durable equipment that holds value and that the business genuinely wants to keep.

Why it matters to your business

HP spreads the cost of capital equipment over its useful life, so a single large purchase does not drain your working capital in one hit. Because instalments are fixed, the cost is predictable and easy to budget. The business can usually claim capital allowances and reclaim VAT on the asset, and interest is an allowable expense — though the precise tax treatment depends on your circumstances, so check with your accountant.

HP is a form of asset finance, and it solves a different problem from short-term working capital. If you need to fund equipment you will keep, HP fits well. If you need flexible cash to cover stock, payroll or a seasonal gap, an unsecured working-capital facility is usually the better tool. Many growing companies use both.

An example

A print firm wants a £30,000 large-format printer. Paying cash would wipe out its cash buffer ahead of a busy quarter. Instead it takes HP: a 10% deposit (£3,000) and 48 monthly instalments covering the balance plus interest. The firm uses the printer immediately, generates revenue from it, and after the final payment owns it outright — free to keep running it for years with no further finance cost.

The printer earns its keep across the whole agreement, so the asset effectively helps pay for itself.

Frequently asked questions

What is the difference between hire purchase and leasing?

With hire purchase you own the asset once the final payment is made. With leasing you rent the asset for a term and generally hand it back at the end (or upgrade), never owning it. HP suits assets you want to keep; leasing suits assets you replace often.

Can I claim capital allowances on a hire purchase asset?

Usually yes — because you are treated as the eventual owner, HP assets typically qualify for capital allowances from the start of the agreement, and you can often reclaim the VAT up front. Tax treatment varies, so confirm with your accountant.

What happens if I miss a hire purchase payment?

Because the finance company still owns the asset until the end, persistent missed payments can lead to repossession. Always speak to the provider early if you are struggling — most prefer to restructure than repossess a working asset.