An HP agreement means that you don’t have to hand over a large amount of money up front in order to buy a costly asset. You usually have to pay a small deposit upfront, like 10%-20% of the total cost which you pay to the machine seller, and then the lender pays the remaining cost of the machine directly to the seller. This way you buy the asset and become the owner of it, and at the same time lender has put a charge on this asset which means lender has secured it’s loan against the asset. You then you pay off the loan amount plus interest on it, in simple and regular monthly instalments that are right for you and your business. You can decide to pay a smaller monthly instalment over a longer duration, or a higher monthly instalment over a shorter duration. You have the flexibility to choose. The best part is that you become 100% owner of the asset after you have paid the final monthly payment.

Of course, this does mean that you cannot sell the asset until the debt has been paid off. You would also be expected to maintain the product and look after it throughout the life of the agreement. Choose your repayment term, from 12 to 120 months and spread the cost at a rate that suits you. This type of agreement is very popular throughout the UK and the rest of the world for its simplicity and accessibility.

If you think the technology behind the asset might become outdated in a few years, and you will need a new asset again at that point, a finance lease would be more suitable for your situation. Here usually you don’t have to pay any upfront deposit from your pocket, and the monthly instalments are also lower as you’re covering the cost of the predicted depreciation, wear & tear, and the interest part only, and not the entire cost of the asset. In this scenario, you gain the right to use a particular asset through regular payments. In effect, you are renting the asset in question from them lender for the duration of your leasing. At the end of the duration, there will still be a large amount owning on the asset.

Once the finance leasing duration has passed, you would then be able to choose to carry on renting by keep repaying the monthly repayments for a longer period, or you can take over the asset by paying a pre-decided lump-sum payment, called the balloon-payment, or you can decide to give the asset back to the lender or part exchange it for a new asset.

Asset Finance Leasing is more like renting with a buy option, where the Lender remains the owner of the asset, unless you exercise your buy option and pay the pre-agreed balloon payment.

Please note that in all cases you will be liable for the upkeep and any insurance for the product during the time you are renting it.

With this option, if you already have equity in a particular asset, then it may be possible to get a loan based around that. The way it works is quite simple. If, for example, you bought something on hire purchase, but still have some payments left to make, you would look to raise capital based on how much of the asset you currently own.

Often we will pay off your original lender, (depending on what is left) and you will receive your loan directly to your bank account.

We can have a look at a specific example to see exactly how it works. Let’s assume that you bought something on HP for £7,000 and have already paid £6,000 off. We would pay the remaining £1,000 to the hire purchase company, take temporary ownership of the asset, (which you would continue to use as normal), then you would receive a percentage of the item’s overall value. You would make the repayments in full until such time as the debt has been paid and the item is yours again.

If there is a type of asset finance you are interested in that you cannot see here, then please let us know and we will do our best to help you.