Hire purchase was originally developed in the United Kingdom, but if you are in the United States, you may know it as a “rent-to-own” plan. Hire purchase for a vehicle means that you will be paying for said vehicle or vehicles, whether it be new or used, in instalments rather than upfront. Whilst you are paying in instalments, you will have use of the vehicle, therefore you do not have to wait until all the instalments are paid off to gain access to it (source: Capital Advisory).
You usually pay a low deposit, at about 10% of the value, and pay off the value of the car in monthly payments and you do not own the vehicle until the value has been met. This also means that for the purposes of taxes and business expenses, it can be more complicated to claim expenses and tax reliefs on a hire purchase vehicle as you do not actually own it until you have completed on the vehicle after a number of years (source: Martin Tiano & co.)
For businesses, hire purchase is commonly practiced when a company does not want to make the capital outlay to purchase a vehicle. Instead of having to buy vehicles upfront and lose out of a large chunk of money, the company benefits from spreading out the payments to make it more manageable.
What are the Benefits?
The main benefits of hire purchase for businesses and their vehicles include:
Clearly, if you are a business, it may be wise to consider hire purchasing and leasing to gain a vehicle when weighing up the benefits.
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