The short answer
With business hire purchase, the company pays a deposit and instalments and owns the car once the final payment and any option fee are made. It suits businesses that want eventual ownership, but the business carries the residual value risk.
How it generally works
The funder buys the car and hires it to the business. Payments can be equal, or lower with a balloon at the end. Ownership passes when the agreement is settled.
Capital allowances
Cars bought on hire purchase may be treated as acquired for capital allowance purposes, but cars do not generally qualify for the Annual Investment Allowance or full expensing. The rate depends largely on CO2 emissions, and new zero-emission cars have been eligible for first-year allowances under rules that can change. Check GOV.UK and your accountant.
Balloon payments
A balloon lowers monthly payments but leaves a lump sum to settle, refinance or cover by selling the car. If the car is worth less than the balloon at the end, the shortfall is the business’s.
Limitations and eligibility
- Cars are not generally eligible for AIA or full expensing.
- VAT on purchase is usually blocked where the car is available for private use.
- Approval depends on affordability and credit profile.
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Educational comparison, no obligation to enquire.
Frequently asked questions
Do I own the car with hire purchase?+
The business owns it once all payments, including any balloon and option fee, are made.
Can a company claim AIA on a car bought on HP?+
Cars are generally excluded from AIA and full expensing. Writing down or first-year allowances may apply depending on emissions.
Can I settle early?+
Usually yes. Request a settlement figure, which may include fees or reflect interest rebates under the agreement.
Related reading
Sources
This guide is general information and not tax, legal or accounting advice. Sorbus Finance is a credit broker, not a lender. Finance is subject to status and lender criteria. Review your position with your accountant.