Hire Purchase

What Hire Purchase Is

Hire purchase lets your business use a van, a machine or other equipment from the day you sign, spread its cost over monthly instalments, and own it once the last one is paid. You put down a deposit at the start and repay the rest over an agreed term.

Until then you are hiring the asset from the finance provider, which is where the name comes from. The provider stays its legal owner throughout the term, and it passes to you only when the final payment has been made, sometimes together with a small option-to-purchase fee.

Of the ways to finance equipment, it is the easiest to follow, because it ends with the asset in your name rather than with a decision about returning it or extending the agreement. It suits vehicles, plant and machinery you plan from day one to keep.

How It Works

You choose the asset and agree the price with the supplier, as you would if you were paying cash. The finance provider then buys it and hires it to you under a hire purchase (HP) agreement, so the van or machine is working for your business from day one while the provider still owns it.

Monthly payments cover the cost of the asset plus interest, spread over the term, often two to five years for business equipment and vehicles and up to 10 years at some lenders for long-lived assets. The deposit, often around 10 percent of the asset’s cost plus VAT, lowers the amount financed and the monthly cost.

When the final payment lands, ownership passes to you, either automatically or once you pay the small option-to-purchase fee the agreement sets out. Nothing more is owed after that: there is no large lump sum to clear at the end and nothing to hand back.

What Assets HP Is Used For

HP covers most physical business assets that lose value over time, including commercial vehicles, vans, heavy goods vehicles (HGVs), cars, construction plant, agricultural machinery, manufacturing equipment and commercial catering kit.

What matters is that the asset keeps working at least until the last instalment, and ideally well beyond it, because you are paying off its full cost. That makes HP a poor fit for technology or software that may be obsolete before the agreement ends, or for kit you plan to upgrade often: you would still be paying for the old one after you have replaced it.

For kit like that, an operating lease or equipment rental fits better. You hand it back when it ages instead of owning something already out of date.

Cost Structure

HP agreements price the finance as interest on the outstanding balance, falling as you repay. The total interest cost depends on the rate, the deposit size, and the term length. A longer term cuts the monthly payment but raises total interest paid.

Many business HP agreements use a fixed interest rate, so the monthly payment does not move over the term, though some lenders also offer a variable rate. That means you know from the start exactly what leaves the account each month, which is easier to plan around than a payment that can rise.

Arrangement fees are common and each lender sets its own, and some also charge a documentation fee or an option-to-purchase fee at the end. Those charges sit outside the monthly payment, so compare quotes on the total amount payable in the cost schedule rather than on the monthly figure.

HP vs Finance Lease

Ownership is the difference. Under a finance lease the provider owns the asset throughout and never hands it over: at the end of the term you either keep leasing it, return it, or sell it on the lender’s behalf and receive a rebate from the sale.

I’d choose HP whenever you want the asset in your name at the end of the term and expect it to keep working well after that. A finance lease makes more sense when you would rather keep your options open on what happens to the asset at term end than commit to owning it now.

HP vs Operating Lease

An operating lease does not transfer ownership. It used to stay off the balance sheet as well, but the FRS 102 amendments that apply from 1 January 2026 bring most leases onto the balance sheet for businesses that report under that standard. Monthly payments are usually lower because you are paying for use rather than buying the asset.

In return, you hand the asset back at the end of the term and start again, owning nothing for the payments you made. That suits assets that lose value quickly or need replacing regularly, such as company cars, IT kit and telecoms equipment, where owning an old one is worth little to you.

For long-lived assets you mean to keep working, HP is the better route. Each instalment goes towards something you will own, and once the last one is paid the asset carries on working for you with nothing more to pay.

Eligibility and What Lenders Look For

Lenders weigh your business’s credit record and trading history alongside the asset you want to finance. If you have only recently started trading, mainstream HP providers will generally want a longer record than you have, and the realistic route is a specialist lender that works with younger businesses and charges more for the extra risk.

The asset is the lender’s security: if payments stop, the provider can take it back. That cuts the lender’s risk compared with unsecured lending, which is why HP rates are typically lower than unsecured business loans for the same borrower profile. The flip side for you is that falling behind puts the asset itself at risk.

A deposit of around 10 percent is common, and putting down more lowers the monthly payment and sometimes unlocks a better rate. Some lenders will accept no deposit at all from businesses with a clean credit record, particularly on vehicles.