Hire purchase: definition
Hire purchase is a way to buy assets by paying in instalments over time. With hire purchase, you legally own the item once all the installments have been paid, but in certain agreements it will appear on your balance sheet at the start of the term.
Hire purchase explained
Hire purchase is a type of asset finance. It's similar to equipment leasing, but simpler (and perhaps less flexible) overall.
Rather than renting an asset, hire purchase is like making a purchase and paying in instalments, like a private customer might do for a car. Normally a 10% deposit and all the VAT is paid upfront.
Unlike leasing, with hire purchase your business owns the item, but that means there are a few other things you need to consider:
Hire purchase: considerations
Do you need the asset for the long-term?
First, will your business need the item for the foreseeable future? If the answer is yes, hire purchase could be a good fit. But if you only need it for a short time or you’re not sure, leasing might be a less risky route to take.