Business Asset / Commercial Hire Purchase
Under a Commercial Hire Purchase, the Hirer contracts to pay hire charges for a fixed period at the end of which the legal title to the property passes to the hirer. Until all the hire charges have been paid, legal title remains with the financier.
The payments of a Hire Purchase can be structured by varying the level of deposit and/or making balloon payments either during or at the end of the Hire Purchase Agreement.
A Hire Purchase provides the Hirer with the ability to purchase the equipment at any time during the term of the agreement.
Unlike a Finance Lease where the full amount of the lease rental is tax deductible, only the interest component of the payments and the depreciation on the goods are tax deductible.
Benefits of a Hire Purchase.
- Preserves the existing cash and credit facilities of the Hirer's business. Funds can either be invested in more productive areas of their business, or maintained to take advantage of an unexpected business opportunity.
- Specific asset security. The Hirer does not have to tie up additional business and/or personal assets.
- Ability to hire less than the total invoice price of the goods by way of deposit
- Other costs associated with the purchase can be financed on the contract such as Comprehensive Insurance, registration and on-road costs.
- Fixed cost contract. A fixed rate and term make for accurate budgeting and also provides a hedge against market fluctuations.
- Hire charges can be specifically structured to suit the business cash flow.
- A larger final payment called a Balloon Payment can be structured to reduce the regular monthly rentals, improving the Hirer's cash flow and making the vehicle more affordable.
- The interest component of the payments and the depreciation on the goods are tax deductible if the asset is used to generate assessable income.
- Ownership automatically transfers to the Hirer with the final payment.
Similar in nature to this product is the Chattel Mortgage which only differs in that the borrower has ownership of the vehicle from the beginning of the agreement.