The two do share certain similarities, so it’s easy to understand where this uncertainty stems from but it’s still worth knowing how the two vary so that you can make an informed decision before selecting an hire purchase or lease finance option.
This article is intended to teach you the basics of the different products.
Essentially a lease is a financial contract made between a business and a customer granting the latter the right to use an asset or piece of equipment for a set period of time. In return, this individual makes a number of regular payments to the company.
Hire purchase offers a way not just to borrow against an asset but to eventually buy it. As with leasing, the customer makes regular payments but in this case, they become its owner once the last payment is made.
The primary difference between leasing an asset and a hire purchase agreement is that in the former instance you will never own the equipment you use, whereas in the latter, you will eventually be given the option to buy it.
When you lease one thing you don’t need to worry about is depreciation as you will never own the asset or equipment outright. This can be more of an issue for those who choose a hire purchase transaction as a preferable alternative, as by the time they claim ownership, the item will be worth significantly less than they borrowed for it.
Another difference is that lease agreements tend to be longer in duration, as the customer has no intention of ever buying the product, so is often happy for the contract to continue indefinitely.
If you’re trying to decide between the two, also bear in mind the tax impact that each option has. Should you lease, the overall cost of this will be counted as expenditure on your part; if you hire purchase, you will be able to claim the depreciation of your asset as an expense.
Now that you know a little more about them, which of these two would be best for you?