When you need to upgrade or increase your construction equipment, asset finance can help you spread the cost over time and even include helpful terms such as deferring VAT or seasonal payments.
Below, you’ll find our guide to understanding the key differences between the two products to guide you to the option that suits you best. Our Account Directors are on hand to take you through both products and any others that might suit your needs, too. Don’t hesitate to get in touch [link] for an impartial, no-obligation conversation.
Hire Purchase (HP)
Hire Purchase (HP) is a finance option where monthly payments are made over an agreed period to purchase a piece of kit. Essentially, you are hiring the asset from the finance company until you have paid off the entire amount owed, at which point you will own the asset outright. The amount you pay each month will depend on the value of the asset, the length of the agreement and the deposit you put down. Once you make the final payment, the kit is yours to keep. We offer both fixed rate and variable rate products.
One of the main advantages of Hire Purchase is that you have a clear understanding of the total cost of the asset, as the interest rate can be fixed for the length of the agreement. This means that you can budget accordingly and plan your finances. Additionally, as you are the legal owner of the asset, once you have paid off the entire amount, you are free to sell it and get some money back once you’re finished with it. Another popular option is to use the equity in the asset as a part exchange against an upgraded asset, keeping your fleet up to date, with minimal/ no upfront cost. We call this the upgrade-cycle.
Finance Lease (FL)
A Finance Lease (FL) is where you would make monthly payments to a finance company to rent an asset. Unlike with HP, you will not contractually own the asset at the end of the finance period.
Instead, you continue to rent the asset from the lender for a ‘peppercorn rental’ at the end of the finance period. Alternatively, you can appoint a third party to sell the asset to and recoup a high percentage of the sales proceeds.
An advantage of FL is that the monthly payments are plus VAT, meaning that you do not have to pay the full VAT upfront. This can be a bit easier on cashflow.
Hire Purchase vs Finance Lease
The main difference between HP and FL is who owns the asset over the period of the agreement. With HP, you are the legal owner of the asset once you have paid off the amount owed. But with FL, you do not have legal ownership of it. This means that you cannot sell the asset without the consent of the finance company.
Which Option is best for You?
It ultimately comes down to your personal needs and what you want from a finance agreement.
If you are looking for long-term ownership of the asset and want to have the freedom to sell the equipment whenever you wish, then HP may be the better option for you. Additionally, if you want to claim capital allowances on the asset, then HP is the only option.
But if you are a business looking to keep your equipment up to date, FL may be a better option as it allows you to refresh your fleet more frequently.
Weigh up your options, the advantages and disadvantages of both, and then compare that to your needs. Not forgetting, you should choose a reliable and reputable company to provide finance for you.
Full Metal Finance specialises in the construction industry. We have a wealth of construction knowledge, with over 30 years of combined experience across the team. We have proven that we are one of the best in the industry with over 200 five-star Trustpilot reviews and our abundance of long-standing customers.
If you are interested in securing HP or FL for a new machine, or maybe even another type of finance, then get in contact with us today and speak to one of our dedicated Account Directors.