What is Hire Purchase?
You can finance a vehicle through hire purchase, which allows you to gain ownership without having to pay the entire value immediately. You will pay an initial payment which will be at least all of the VAT at the beginning of the arrangement and then will be required to pay monthly instalments until the full value of the vehicle is paid. This is the traditional method of owning a vehicle.
Payment
The deposit can be any amount although a minimum of all the VAT on the purchase price must be paid. The larger the deposit, the lower the amount you borrow. The repayment period is from 12 months up to 60 months. Monthly repayments are VAT free as the VAT will have already been paid. 100% of the interest charges can be offset against taxable profits. The vehicle itself is an asset on your balance sheet and benefits from writing down allowances.
Things to know
Vehicle is an asset on your balance sheet and benefits from writing down allowances. At the end of the contract period the vehicle is 100% owned by you once all payments have been made.
Hire Purchase Pro’s and Con’s
Pros
- Simple Method Of Finance.
- Vehicle Owned On Completion Of Payments.
- Capital Allowances Available.
- If VAT Registered, 100% VAT Reclaimable The End Of The 1st Quarter.
- Low Interest Rates.
Cons
- On Balance Sheet Form Of Finance.
- You Are Liable For The Residual Value Risk.
- Large Deposit Hindering Cash Flow.
- No Final Payment, Keeping Monthly Payments High.
- Inflexible End Of Term Options.
