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Hire purchase explained

What is Hire Purchase?

Hire purchase is a type of loan agreement used to purchase assets. The buyer pays an initial deposit, followed by monthly payments over an agreed period. Once the final payment is made, the buyer owns the asset.

In hire purchase, the lender owns the asset during the period of the loan, but the buyer has the right to use it. The lender may also include optional extras such as warranty, maintenance, or insurance.

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Hire Purchase

How does hire purchase work?

The monthly payments include both the repayment of the loan amount and the interest charged by the lender, and the total cost of the loan will be higher than the purchase price due to the interest charged. Hire purchase agreements can be useful for people who want to acquire assets but do not have enough funds to purchase them outright.

Representative example

Let's say you want to purchase equipment for £20,000, and you make an initial payment of £4,000. The remaining balance of £16,000 is then spread out over 36 months with an interest rate of 10% per annum. The monthly payment would look something like this:

  • Loan amount: £16,000
  • Interest rate: 10% per annum
  • Loan term: 36 months
  • Monthly payment: £485.31

This payment would include both the repayment of the loan and the interest charged. The breakdown of the payment would look like this:

  • Principal repayment: £444.44
  • Interest charge: £40.87

Keep in mind that this is just a representative example and the exact terms of the hire purchase agreement would vary depending on the lender and the specific terms agreed upon.

Hire purchase transaction - A card machine displaying a printed receipt, representing a hire purchase transaction.
Hire purchase discussion - Two women enjoying a friendly conversation and catching up over coffee.
Pros & Cons of Hire Purchase

Is hire purchase right for your organisation?

Before entering into a hire purchase, there are several factors you should consider.

Pros of Hire Purchase
  • Flexibility: Hire purchase agreements often come with flexible terms and conditions, allowing you to choose a repayment plan that suits your budget.
  • Opportunity to own the asset: With a hire purchase agreement, you have the option to own the asset at the end of the agreement by paying the final balloon payment.
  • Regular payments: Hire purchase agreements typically involve regular payments, which can help you budget and manage your finances more effectively.
Cons of Hire Purchase
  • Higher cost: Hire purchase agreements often come with higher interest rates compared to other forms of financing, which can make them more expensive in the long run.
  • Balloon payment: The final balloon payment at the end of the hire purchase agreement can be a significant amount, which may be difficult to pay if you haven't budgeted for it.
  • Limited flexibility: Once you enter into a hire purchase agreement, you may not be able to change the terms or make early payments without incurring penalties.

Support from Bluestone

Setting up Hire Purchase

At Bluestone, we understand that navigating commercial finance options can be a complex process. That's why we're here to support you every step of the way.

Our team of asset finance experts has years of experience helping organisations like yours secure the funding they need, and we'll work closely with you to understand your needs and goals.

We can secure competitive rates, flexible terms, and fast approval times, so you get the funding you need to grow your organisation. Plus, we'll guide you through the entire process, ensuring that you understand the terms and conditions so you can make an informed decision.

Contact us today to learn more about how we can help you secure funding through a Hire Purchase agreement.

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Hire Purchase

Frequently Asked Questions

Can you explain the concept of a Hire Purchase agreement and how it works for financing assets?

A Hire Purchase agreement is a type of financing that allows an organisation to acquire an asset by making regular payments over a specified period of time, with the option to purchase the asset at the end of the agreement. Unlike a loan, the organisation does not own the asset until the final payment is made.


How does a Hire Purchase agreement benefit my organisation, and what advantages does it offer compared to other financing options?

A Hire Purchase agreement can benefit an organisation by allowing it to acquire the assets it needs without making a large upfront payment. Additionally, the regular payments are typically lower than the total cost of the asset, providing more flexibility with cash flow.


What types of assets are eligible for financing through a Hire Purchase agreement, and what are the requirements for approval?

Assets eligible for financing through a Hire Purchase agreement vary, but they typically include equipment, vehicles, and other organisation-related assets. Approval requirements typically include the ability to make the regular payments and a good credit history.


What is the typical repayment period for a Hire Purchase agreement, and how does it impact my cash flow and financial statements?

The typical repayment period for a Hire Purchase agreement ranges from 1 to 5 years, depending on the asset and the organisation's needs. The regular payments have a manageable impact on cash flow, and the ownership of the asset will improve the organisation's balance sheet.


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