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Hire purchase / leasing is a type of asset finance used to purchase specific assets, for example vehicles, machinery and equipment.

Businesses or individuals possess and control the asset during an agreed term, while paying rent or instalments covering depreciation of the asset.

With leasing, the asset is not owned by the business or individual – although in many cases the asset is sold to the business or individual at the end of the term. Hire purchase instalments will cover the capital cost so ownership is transferred once the last instalment is made.

Both leasing and hire purchase agreements can be orientated around the specific requirements of the business or individual. Seasonal or annual payments can be arranged as opposed to monthly and in some cases there can be lump sum payment at the end of the agreement which has the effect of reducing the repayments during the term.

Applying

A hire purchase / leasing arrangement can be organised between the vendor/lessor and purchaser of the asset at the point of sale/lease. The finance is often provided by a  financial institution, which will transfer the funds to the vendor. The hirer/lessee will then make the appropriate payments to the financial institution.

Maintenance

It is important to maintain the payment due under a HP / leasing agreement and to ensure that the payments are made on a timely basis. Failure to keep up the payments will lead to the finance provider repossessing the assets which are subject to the finance. Delinquent payments will also affect the credit rating of the business.

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Last updated: 2 Jul 2012