Lease vs. hire purchase explained

Posted on Monday, March 20, 2017 - 10:44

In 2015, 61.4% of the companies that wanted to buy equipment intended to purchase it from local providers. This was the result of an AFA research that can be found in Issue 04 of Equip. Throughout time, the situation has changed much since the number of businesses that want to re-equip is growing annually. In order to survive, a company has to get new technology. Their prime choices when it comes to buying new equipment are either lease purchase or hire purchase.

Are lease and hire purchase any different? Which of the two is the best?

They are different. They would’ve had the same name if it weren’t for a few distinctions. The main difference between them is the ownership of the asset you applied for: when you choose a hire purchase, you are given the opportunity to buy it at a time that is established between both parties; leasing is basically borrowing, with no ownership of the asset.

Let’s take a closer look at the differences between the two:

Lease

When you lease something, you use the asset in exchange for a monthly payment. Let’s talk about equipment, for example. You pay to the lessor a certain amount of money to use that piece of equipment, and you turn it or buy it in at the end of the lease, which lasts from 3 to 5 years. A lease typically implies the up-front payment of registration taxes and a first month’s rental as a guarantee. When you terminate the lease earlier than you were supposed to, there can be severe financial repercussions. Also, the termination is when you can either give the equipment back or buy it.

Hire purchase

This is basically an agreement to buy the assets. You use the equipment you were provided with, and you buy it at the end of the term. Like in the case of the lease, a hire purchase lasts up to 5 years, too. Up-front payment includes a deposit and the repayment of the first loan. If you hire purchase a vehicle, there will be no limit of kilometres you make during the term, in contrast with the lease, where there are limitations sometimes. When you’ve made your last repayment, the equipment is all yours. This cements the aforementioned main difference between lease and hire purchases: ownership. In the former case, you can buy the asset only if you want to; in the latter, the main objective is outright buying, not borrowing.

The number of businesses in Australia is growing from year to year. Finance and insurance are the main industries in the spotlight; on the other side of the coin, agricultural businesses have decreased by 10% in just five years, as it’s shown by figures from the Australian Bureau of Statistics, which can be analysed in-depth in this article.

It is no surprise thus that leases and hire purchases companies are being flooded with customers. The pursuit of better equipment is always on-going.

If you had to upgrade your equipment, would you do it through a lease or a hire purchase?

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