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Business Hire Purchase (HP)

The business pays monthly over the agreed contract period of 12 to 60 months and then pays a nominal fee at the end of the contract and obtains legal ownership. The monthly payment is determined similarly to a car loan, from the total value of the car plus interest divided by the number of months. This is just as someone would under a personal hire purchase agreement.

Unlike contract hire or purchase, the businesss must pay for the entire cost of the vehicle and monthly payments are therefore much higher than when ‘leasing’ on a contract.

Hire Purchase is the most common method of car finance as most dealers are typically incentivised by their commissions to offer this as standard, however it is far less prevalent for businesses than private buyers.

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Advantages of Hire Purchase

Hire purchase has several advantages over a business loan:

  1. Hire purchase is cheaper than a (‘unsecured’) business loan because the ownership of the car is retained by the finance company (ie; it is secured) and if monthly payments are not made, the vehicle is repossessed
  2. Hire purchase is relatively quick as it is offered directly by most dealers and manufacturers and is agreed to more easily than a business loan to a company without an existing relationship with its bankers
  3. Deposits are lower than with business loans

And compared to contract purchase:

  1. If the final ‘balloon payment’ is paid to acquire the car, then a hire purchase agreement would likely have been cheaper overall even considering notably higher monthly payments

And compared to personal contract hire:

  1. If you intend to own and retain the same car for more than 4 or 5 years, than hire purchase is cheaper over the long term than leasing because there are no further payments once you own it completely.

Disadvantages of Hire Purchase

Compared with contract hire or contract purchase:

  1. Often the finance company will expect all of the VAT for the whole value of the vehicle to be paid with the first installment, whereas with leasing the upfront payment is only the equivalent of three months payments
  2. The monthly payment required is always much higher than for contract hire or contract purchase
  3. Interest has to be paid on the full value of the vehicle, even if there is no intention to retain it for longer than 2-4 years
  4. Hire Purchase often has hidden fees and individual dealers are not incentivised to offer the best deal without negotiation so the best deal available will require some real effort to locate
  5. The termination fee is significant if the circumstances of the business changes and the vehicle has to be returned

and compared with a business loan:

  1. The business is not the owner of the vehicle from day one so it can not be modified or exported without permission.