Hire Purchase

How hire purchase works

A finance company generally buys the asset and allows the business to use it while instalments are paid. The customer does not normally own it during the hire period. The agreement may include a deposit, a final balloon and an option-to-purchase fee.

Practical UK business example

A contractor funds an excavator over four years. It uses the machine throughout the term and acquires title only after settling the agreement and exercising the purchase option.

Illustrative example only; not a finance quotation or a client case study.

Why it matters

Hire purchase can suit a business that wants eventual ownership and expects to use an asset beyond the finance term. Comparing the final payment with the asset’s likely value helps avoid an end-of-term funding gap.

Limitations and common misconceptions

It is not the same as a finance lease, where ownership does not automatically pass to the lessee. Tax ownership and legal title can differ; capital allowances and VAT must be checked for the particular contract.

Explore asset finance to discuss how the structure relates to your business.