Asset Finance Hire Purchase (HP) is a type of financing arrangement commonly used by businesses to acquire assets such as vehicles, equipment or machinery. In a HP agreement, the lender purchases the asset on behalf of the business and then hires it out to the business for an agreed-upon period, during which the business makes regular payments to the lender.
How does asset finance hire purchase work?
1. Selection of Asset: You (our client) selects the asset you wish to acquire, whether it's a vehicle, machinery or equipment, and negotiates the purchase price with the supplier or vendor.
2. Agreement Terms: TSF places your business with a funder and you then enter into an agreement with a finance provider. The funder will outline the terms of the hire purchase arrangement which includes the duration of the agreement, the amount of the initial deposit (if any), the repayment schedule, and any other relevant terms and conditions.
3. Payment Structure: You (in most cases) will pay an initial deposit, typically ranging from 0% to 20% of the asset's purchase price, although this can vary depending on the agreement and the lender's policies. The remaining balance, plus interest and fees, is then paid off in regular instalments over the term of the agreement.
4. Asset Ownership: While you are making payments, the lender retains ownership of the asset. However, once all payments, including any balloon payment if applicable, have been made, ownership of the asset is transferred to you, making you the outright owner.
5. Flexibility: Asset finance Hire Purchase agreements offer flexibility in terms of payment structures, allowing businesses to tailor repayments to their cash flow needs. This may include fixed or variable repayment schedules, seasonal payment options, or the inclusion of balloon payments to lower regular instalments.
Overall, asset finance hire purchase provides businesses with a flexible and cost-effective means of acquiring essential assets while preserving cash flow and potentially benefiting from tax advantages. HP is a popular financing option for businesses looking to expand or upgrade their operations without the need for significant upfront capital expenditure.
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