6 min read
Hire purchase (HP) is one of the oldest and most widely used forms of asset finance in the UK, and remains a natural first choice for businesses that want to own equipment outright once the agreement ends.
What it is
Under a hire purchase agreement, the finance company buys the asset and hires it to the business for an agreed period, during which fixed instalments are paid covering capital and interest. Once the final payment, often together with a small option-to-purchase fee, is made, title transfers to the business.
Because ownership is the end goal from the outset, HP is generally used for assets a business intends to keep for the medium to long term, rather than equipment that is likely to be replaced or upgraded frequently.
Who it suits
- Farms and contractors buying tractors, combines or other core machinery they plan to keep for several seasons
- Construction firms purchasing plant that will see long service life
- Businesses that want the asset on their balance sheet and available for capital allowances, subject to their accountant's advice
- Owners who prefer the certainty of a fixed cost with no residual value risk to negotiate at the end
How it works
A deposit is usually paid at the outset, typically between 0% and 20% of the asset cost, though this is flexible depending on the business and the asset. The remaining balance is repaid over an agreed term, commonly two to seven years depending on the asset's useful life.
- Deposit or part-exchange contribution paid at the start
- Fixed monthly, quarterly or seasonal instalments over the agreed term
- VAT is usually payable upfront on the full asset price, recoverable in the normal way if the business is VAT-registered
- Title passes to the business once all payments and any option fee are settled
Typical terms
| Term | Typical range |
|---|---|
| Term length | 24 to 84 months, matched to the asset's working life |
| Deposit | 0% to 20%, sometimes via part-exchange |
| Payment frequency | Monthly, quarterly, or seasonal profiles for farming businesses |
| End of agreement | Title transfers to the business after final payment and option fee |
| Security | The asset itself; no additional charge over other assets is usually required |
Pros and trade-offs
Where it works well
- Clear path to outright ownership
- Fixed payments make budgeting straightforward
- Payment profiles can be seasonal or structured to match income
- May support capital allowance claims, subject to accountant confirmation
Trade-offs to weigh
- VAT is typically due upfront rather than spread across the payments
- The business carries residual value risk once it owns the asset
- Less flexible than leasing if the business expects to upgrade frequently
Worked example
Worked example: telehandler purchase
- Asset cost
- £68,000 plus VAT
- Deposit
- £6,800 (10%)
- Term
- 60 months
- Indicative monthly payment
- Approximately £1,150
- Ownership
- Transfers after final payment and £1 option fee
These figures are illustrative only, based on an assumed rate, and are not a quotation. Actual payments depend on the asset, term and status of the business.
If hire purchase looks like the right fit for a purchase you have in mind, our team can talk through structuring options and provide an indicative quotation.
Next step
Talk through the numbers with us
Send us the details of the asset and we will come back with an indicative figure and a properly structured option from the funder panel. No obligation, and no pressure to proceed.