What is hire purchase?
Hire purchase is an asset finance arrangement where you make fixed monthly payments over an agreed term and take ownership of the asset at the end. The asset appears on your balance sheet from day one. HP is commonly used for vehicles, machinery, and equipment. You can claim capital allowances on the asset as the beneficial owner.
What is a finance lease?
Under a finance lease, the lender purchases the asset and leases it to you for most of its useful life. You never own the asset. At the end of the term, you can extend the lease, return the asset, or sell it on the lender's behalf. Monthly payments are typically lower than HP because there is no balloon ownership payment.
What is a balloon payment?
A balloon payment is a large lump sum due at the end of a finance agreement. Including a balloon payment reduces your monthly instalments during the term but requires you to pay a significant amount at the end, either in cash, by refinancing, or through the sale of the asset. Balloon payments are common in vehicle finance.