Hire Purchase (HP) agreements differ from lease agreements in that the customer is expressly offered an option to purchase the asset at the end of the term.
The finance company retains ownership of the asset until such option is exercised. Whilst you are still making payments, you are not allowed to sell or dispose of the goods without the lender’s permission. The lender will be able to repossess the goods if your business falls behind with payments.
The key features of an HP agreement are:
At the end of the agreement you will be given the option to acquire the asset upon payment of an option to purchase fee. Alternatively, the asset can be returned to the finance company at the end of the term.
Finance companies will disclose all fees and charges in the terms and conditions of the Hire Purchase agreement. This will be provided in the documents that you sign
What are the benefits of a Hire Purchase agreement?
What happens at the end of the agreement?
There are several ways to conclude a Hire Purchase Agreement:
EARLY SETTLEMENT
You can settle a Hire Purchase agreement at any point in the agreement by paying the outstanding balance and the Option to Purchase fee to the lender. There may be a charge for settling the agreement early. This would result in the client owning the asset. Different funders have different terms.
END OF AGREEMENT/CONTRACT
At the natural expiry of a Hire Purchase contract, once all the contractual payments have been made, you can either pay the Option to Purchase fee and take legal title to the asset, or alternatively, you choose not to pay this fee and simply return the equipment to the finance company.
VJ Financial Solutions are an Independent Specialist Consultancy, we provide Commercial and Business Finance support to SME clients throughout the whole of the UK. Whether your business is well…
