Hire purchase will allow you to use an asset straight away - whether it is a car, machinery or construction equipment - and pay back the money in manageable instalments over a period of time.
What is hire purchase?
Hire purchase is a type of borrowing. It is different from other types of borrowing as you don’t own the item until you have paid the cost in full.
An initial deposit is required but you pay the rest back in regular instalments.
The lender will buy the asset on your behalf and will be the owner until you have paid the amount in full. Once you’ve paid the total, you will become the owner.
You can typically use hire purchase on the following:
- Buses and coaches
- Agricultural equipment
- Construction equipment
- Materials handling equipment
- IT equipment
What are the benefits of asset finance?
One of the best things about asset finance is that you will have total control of the asset once you have completely paid for it. You won’t need to worry about saving up and paying for it all in one go, as you’ll be paying monthly instalments instead.
This is a flexible way of funding your business and ensuring that you get the equipment that you need, when you need it. You can choose how the finance is structured too. You may opt for a flexible deposit, fixed payments or if you wish, a final lump sum. You’ll also get the option to choose between fixed or variable interest rates.
Am I entitled to a loan?
Most lenders will consider applications from business operators such as sole traders, partnerships, limited liability partnerships and limited companies.
Some lenders will treat your application on an individual basis rather than using a computer to determine whether or not you are entitled to a loan. This type of lender could prove beneficial, particularly if you have had any experiences that you suspect may hinder your chances of getting a loan.
If you’d like a tailored service, look out for lenders who will assess your business on its own merits, taking into account the strength of the business along with your experience and plans for the future. All these factors are likely to determine how much interest you will be charged.
How do I apply?
Lenders will have their own set of lending criteria which must be met before your application is accepted. The information that the lender requires may vary depending on the size of your business, the cost of the asset you require and whether or not you are a member of the Independent Operators Association (IOA).
You may be required to provide your latest bank statements so that your lender can make sure that your business is generating enough money to meet the repayments. Viewing your bank statements also helps the lender to see how you conduct your accounts.
Lenders will check your financial background as a whole, while looking at your business performance and credit report.
It is important that you give your potential lender as much information as possible, and if you have had problems with missed payments in the past, these will need to be investigated.
Bounced cheques or returned direct debits may cause problems, but in some cases, exceptions may be made if a good explanation is presented to the lender.
What if I can’t meet the repayments?
Unfortunately, if you cannot meet the repayments, the lender may repossess the goods from you. Usually, a lender would need a court order to do this, but if you’ve paid less than a third of the total amount for the asset, then they won’t necessarily need a court order.
The lender will usually sell the repossessed goods at an auction and will use the money to pay off your debt. In some cases, if enough money isn’t retrieved from the auction then you will have to pay whatever is left.
Can I sell or give away the asset if I don’t need it?
You cannot sell, give away or dispose an asset while you are still making monthly payments to your lender. The lender is the owner of the asset until you have paid back the money in full, therefore you’ll be committing
a criminal offence if you get rid of the item since it is not yours to sell.
If you decide that you don’t want the asset anymore, you can terminate the hire purchase in writing and return the goods to the lender. This is particularly useful if you cannot afford to keep paying.
You will be required to pay all of the instalments due up to the time that your agreement is terminated. However, you may have signed a contract to say that if you request a termination, you will still pay up to a certain amount at the start of the agreement. If this is the case you may be required to pay a fee before you can fully terminate the contract and give the asset back.
It’s usually much better to terminate the contract yourself by discussing your situation with the lender, rather than struggling to make the repayments and letting them chase you. If you don’t end the contract responsibly, you could find yourself in debt.
If you think your business could benefit from a new piece of equipment, but you can’t afford to pay for it all in one go, contact us for more information about asset based lending.
We can lend business owners anything from £5,000 to £1 million and we strive to assess each application on an individual basis, to help you find the right solution for your situation.
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