The customer selects the supplier of the asset and negotiates directly the specification and the price.
An initial deposit plus the full VAT, if applicable, is paid leaving the balance, plus interest, to be spread over an agreed term, typically 1-5 years.
The finance company pays the supplier and lets the asset to the customer under the terms of the hire purchase agreement.
Once the customer has made the required regular rentals, he is entitled to buy the asset at a nominal price, known as the option to purchase fee. Until this happens, the asset belongs to the finance company as their security.
On all hire purchase agreements the equipment is shown on the balance sheet as a fixed asset and depreciation and capital allowances are accounted for as if the equipment were purchased outright.
The benefits of hire purchase are:
- The equipment is owned at the end of the agreement
- Existing bank credit lines are not tied up
- The agreement can be settled at any time
- Rentals can be monthly, quarterly, semi annual, annual or seasonal
- There are both fixed and variable rate schemes available
Hire Purchase is suitable for both businesses and private individuals.