Hire purchase vs leasing: understand your options

When it comes to acquiring a new vehicle or equipment, business owners have several financing options available to them. If a chattel mortgage or vehicle and equipment loan doesn’t suit your business, you may want to consider hire purchase and lease agreements. Each of these vehicle financing options come with its own features, and it’s up to you to choose the option that best suits your situation.

We explain the difference between a hire purchase and a lease and outline the features of each. 

Hire purchases and leases explained

What is a hire purchase?

Hire purchases allow businesses to pay for a vehicle in instalments over a fixed period. Under the terms of these agreements, the lender purchases the vehicle and retains ownership until the last regular repayment is made.  

What is a lease?

Under a lease agreement, a lender buys the vehicle and leases it to your business over a predetermined period, during which you make regular repayments. Depending on the terms of your agreement, you may have the option to return the asset at the end of your lease, extend the lease, or upgrade to a new asset. 

What are the differences between a hire purchase and a lease?

There are five key differences between a hire purchase and a lease. These are outlined below:

Hire purchase

• Ownership: Ownership is transferred to you once your final payment is made. Personal guarantees may also be required from Company Directors.
• Repayments: You pay down the principal and interest in regular instalments.
• Tax treatment: If you use the asset for income-producing purposes, you can typically claim the interest component of the hire purchase payments and the asset depreciation as tax deductions.
• Maintenance: You bear the cost of maintenance but have the freedom to choose how and when to do this.
• Flexibility: You can use the asset however you see fit, since you’ll eventually become the owner.

Lease

• Ownership: You don’t own the vehicle, the lender owns the asset, but you retain the right to use it for the term of your lease.
• Repayments: You pay a regular lease rental fee, which is usually less than hire purchase instalments.
• Tax options: If the leased asset is used for income-producing purposes, the lease payments can be claimed as a tax deduction.
• Maintenance: Repairs and servicing costs are the leasing company’s responsibility.
• Flexibility: At the end of your lease, you may be able to return the asset to the lessor, extend the current lease, or enter into a new lease.

Cost of a hire purchase compared to a lease

Due to the differences outlined above, the costs associated with each of these finance options also vary. 

Leases are generally more affordable for two reasons:

• you are not required to pay a deposit
• your monthly repayments are typically less.

For some businesses, this makes leasing a very attractive option. However, while leasing may be more affordable, you may not end up owning the asset you’ve leased.

A hire purchase typically attracts higher fees but comes with the added benefit of ownership. Businesses can also offset some of the expense of a hire purchase by claiming depreciation on the asset at tax time – something not possible with a lease. 

How to choose between a hire purchase and a lease

Whether a hire purchase or lease will be better for your business depends on your needs, cash-flow position and long-term goals.

Leases are typically more popular with businesses that need a vehicle for a set period but want the option to upgrade sometime in the future. 

Hire purchases are more popular with businesses that want to purchase a vehicle but would prefer not to pay the full value up front, leaving them with more working capital to fuel their growth.

ANZ’s business bankers can also help you decide on the best option for your business.

ANZ is here to help

ANZ can support your business with both hire purchases and lease agreements. For help acquiring your next business asset, you can get a quote or book an appointment to speak with an ANZ business banking specialist using the links below, or apply for financing today via ANZ GoBiz. 

• Vehicle and equipment finance
• Equipment or car lease
• Hire purchase