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HP vs Finance Lease for Fleet Vehicles

Compare hire purchase and finance lease side by side: monthly payments, total cost, ownership, VAT treatment, and what works best for your fleet.

Enter your vehicle details

On finance lease the initial rental/deposit is also + VAT

Select the option that best describes your business. This sets the APR starting from shown.

= £10,000

The expected vehicle value at end of agreement, used in finance lease calculation only

Hire Purchase

£1,109

per month

Finance Lease

£934

per month + VAT

ItemHire PurchaseFinance Lease
Monthly payment£1,109£934 + VAT
Total amount payable£58,240£59,809 + VAT
Total interest£8,240£9,809
Balloon payment at end£0£10,000 + VAT
Vehicle ownershipYours at end of agreementLender retains ownership
Balance sheetOn balance sheet (asset + liability)May be off-balance sheet
VAT treatmentVAT paid upfront on purchase; 100% reclaimable input tax if commercial vehicleVAT (20%) charged on each rental and deposit as they fall due. 50% reclaimable if car; 100% if commercial vehicle
Best suited toOperators wanting to own the vehicleOperators prioritising lower monthly cashflow

This tool is designed to give you an illustrative example of estimated monthly payments. All applications are subject to underwriting and an independent lenders credit outcome. Please contact Sorbus Finance for further information. Finance lease monthly payment assumes balloon is paid at end of agreement. Finance lease figures are shown excluding VAT — 20% VAT is charged by the lender on each rental payment, the initial deposit, and the balloon as they fall due; the exact amount recoverable depends on vehicle type and your VAT position. Please seek advice from your accountant.

Representative 8.9% APR. Your rate may differ based on your financial profile and lender assessment.

For UK fleet operators, the choice between hire purchase and finance lease is one of the most significant financial decisions in fleet management. Both products spread vehicle acquisition costs over monthly instalments, but they differ fundamentally in ownership, balance sheet treatment, VAT recovery, and end-of-term flexibility. Hire purchase transfers ownership to the business at the end of the agreement, making it the preferred route for operators who intend to use vehicles for many years beyond the finance term or who want to avoid ongoing commitments. Finance lease keeps the vehicle on the lender's books throughout, which historically offered off-balance-sheet benefits, though IFRS 16 now requires most leases to be recognised on the balance sheet.

VAT treatment differs between the two structures and can have a meaningful impact on cashflow. For commercial vehicles, including vans, HGVs, and tractor units, VAT on HP repayments is fully reclaimable as input tax, as is VAT on finance lease rentals. For cars, the position is more complex: VAT on HP is not reclaimable unless the car is used exclusively for business, while VAT on finance lease rentals is 50% reclaimable in most cases. Fleet managers running mixed fleets of cars and commercial vehicles should model the VAT position carefully before committing to a structure, as it can materially affect the true cost of finance.

The balloon payment in a finance lease, the agreed residual value paid at the end of the term, is the key mechanism that allows monthly payments to be lower than an equivalent HP agreement. By deferring a proportion of the vehicle cost to the end of the contract, monthly cashflow is reduced. This makes finance lease particularly attractive for businesses running high-value vehicles with strong residuals (new HGVs, refrigerated trailers) or those wanting to cycle vehicles regularly. However, operators must plan carefully for the balloon payment at the end of the agreement, typically by refinancing, arranging a sale, or returning the vehicle through a secondary period of hire.

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Kacper Materek, Fleet & Mobility Finance Specialist at Sorbus Finance

Kacper Materek

Fleet & Mobility Finance Specialist

Fleet, car rental, driving schools, coaches and vehicles

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  1. STEP 1

    A conversation with a broker

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  2. STEP 2

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  3. STEP 3

    Lender assessment

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  4. STEP 4

    Documentation

    If a lender offers terms and you accept, we help coordinate agreements and payout paperwork with you.

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