Hire Purchase enables you to acquire an asset while paying for it in monthly instalments over an agreed timescale, typically between 2-7 years. Hire Purchase allows you to spread the cost of your investment over the working life of the equipment making for easy budgeting and accurate cash flow management. You have a fixed monthly repayment and you own the equipment at the end of the term.
In most cases, Hire Purchase requires the VAT to be paid as deposit on acquisition of the asset. In some cases, we have the packages allowing our customers to defer the VAT for a 1, 2 or 3 month period to further protect your cash flow. Typically where the VAT is greater than £20,000.
Benefits of Hire Purchase
- Own the Equipment – you can normally claim Capital Allowances
- Spread the Cost over the life of the Equipment
- Structured Payments – Monthly, Quarterly or Annually
- Tax efficient – You can offset your hire purchase interest and charges against pre-tax profits
- Reclaim VAT – This is a purchase product
By definition, a balloon payment is a lump sum payment due to the lender at the end of your agreement, this can be opted for on both Hire Purchase and Finance Lease Agreements.
Your balloon payment is calculated by the lender at the start of your agreement based on the term and anticipated annual usage of the vehicle, peice of machinery or equipment.
There are 2 main products for puchase facilities with balloon payments.
PCP – Personal Contract Purchase. This product is available for private individuals to purchase a vehicle with a Lender Guranteed Residual Value. On this agreement, you will have the option to hand the vehicle back to the lender at the end of the fixed period.
Lease Purchase – This is also referred to as Hire Purchase with a Balloon by some. The balloon on these agreements are not Guaranteed by the lender. By virtue, you will tend to find the lenders are slightly braver with the size of balloons they are willing to offer giving you an even more manageable monthly repayment.
85% of new car sales are financed with a balloon payment, this is a product we expect to see dominate the car and prestige vehicle market for years to come.
You pay VAT on the rental payments, not the purchase price.
If cash flow is a priority for the company paying a deposit along with the VAT upfront can be difficult. Leasing allows businesses to upgrade assets more frequently ensuring they have the latest equipment without having to make further capital outlays. You can also normally offset your payments against your taxable profits
At the end of the fixed period, you have 3 options.
- Continue to use the asset by entering a secondary rental period
- Sell the asset and keep a portion of the income from the sale
- Return it to us
Benefits of a Finance Lease
- Reduce costs – Reclaim VAT on rentals
- Low initial outlay – Quick access to the asset you need without a heavy upfront investment
- Flexibility – Rental payments and lease periods can be designed to match your cash flow
- Tax efficient – Monthly Rentals can usually be offset against pre-tax profits