Hire purchase

Definition

Hire purchase is a form of asset finance where a company pays for an asset in regular instalments and becomes its legal owner once the final payment (and any option fee) is made. Until then, the finance provider retains title as security.

In plain terms

You use the asset from day one, pay for it over time, and it's fully yours at the end — a bit like a mortgage for a machine or van.

Why it matters for your company

HP spreads the cost of essential kit while letting you claim capital allowances, and preserves cash for trading. See asset finance.

In practice

Take a small manufacturing company that needs a replacement piece of production equipment. Rather than paying the supplier in full up front, the company agrees a hire purchase schedule with a finance provider: the equipment arrives and goes straight into use, while the company commits to a series of instalments running over an agreed term. Throughout that term the asset sits on the company's balance sheet and is used in the business exactly as if it were owned outright, even though legal title stays with the finance provider until the final payment and any option-to-purchase fee are settled.

Because the instalment profile is fixed at the outset, the finance director can plan cash flow around it alongside other outgoings, and the company's accountant can factor in capital allowances from the point the asset is brought into use rather than waiting for full ownership. Once the last payment clears, title passes automatically and the asset becomes the company's own, with no further action required.

How lenders read it

When a lender or finance provider assesses a hire purchase proposal, the asset itself is central to their thinking: because it acts as security for the duration of the agreement, its type, condition and expected useful life all feed into how the arrangement is structured. Equipment or vehicles with a well-established resale market and a predictable depreciation curve are generally easier to finance this way than highly bespoke or fast-obsoleting assets, since the security value needs to hold up over the term.

Lenders also look at how the asset fits the company's trading activity — whether it directly supports revenue generation, such as core production machinery or a delivery vehicle — and at the company's ability to sustain the instalment commitment through normal trading cycles. Because Creditcorp lends to UK limited companies rather than to individuals, any hire purchase style arrangement of this kind sits within the company's own credit profile and is assessed on that basis, not against the personal circumstances of its directors.