Types of Commercial Finance

Buckingham Leasing Ltd Hire Purchase Asset Finance

Hire Purchase

Hire purchase (sometimes known as lease purchase) enables you to buy equipment and machinery outright, without depending on bank loans and overdraft funding.

You make regular fixed payments over an agreed period of time, and have the option to keep the asset at the end of the term. You pay the VAT on the asset at the outset, and are responsible for the maintenance and insurance of the equipment. 


Key benefits of hire purchase

  • The security of fixed term finance which can only be withdrawn if you do not keep to the terms and conditions of the contract
  • Agreed regular repayments, with a fixed interest rate facilitates budgeting and can be matched to your cash flow
  • Straightforward form of financing which leaves you in control of the used equipment value and the claiming of capital allowances
 
Buckingham Leasing Ltd Finance Lease Asset Finance

Finance Lease

A finance lease is similar to a hire purchase agreement, in that you make regular fixed payments over a period of time. However, the VAT is payable on each lease payment as opposed to at the outset of the purchase and you do not gain ownership of the equipment at the end of the “primary leasing period”. At this point a nominal "secondary lease period" annual payment is charged for continuous use of the equipment. Alternative the equipment can be sold to a third party, for which you will receive the full sale proceeds.

Whilst you can not claim capital allowance, you can offset the repayments against taxable profits.

Key benefits of finance lease

  • The security of fixed term finance which can only be withdrawn if you do not keep to the terms and conditions of the contract
  • Agreed regular repayments, with a fixed interest rate facilitates budgeting 
  • Maintains steady cash flow, with the ability to spread VAT payments across the duration of the agreement
  • Straightforward form of financing which leaves you in control of the used equipment value and the claiming of capital allowances

 

 
Buckingham Leasing Ltd Operating Lease Asset Finance

Operating Lease

Operating lease differs from hire purchase and finance lease, in that you never repay the full value of the asset over the rental agreement. You pay only for what you use/how long you use it and not the full cost of purchasing the equipment. At the end of the rental period you return the asset. VAT is payable on each lease payment and although you can't claim capital allowance, you may offset rental payments against taxable profit.

Key benefits of operating lease:

  • The security of fixed term finance which can only be withdrawn if you do not keep to the terms and conditions of the contract
  • Agreed regular repayments, with a fixed interest rate and the ability to spread VAT payments across the duration of the agreement to facilitate budgeting 
  • Lower payments than with hire purchase or finance lease
  • None of the risk associated with re-marketing and sale of the used asset
  • The opportunity to develop a more planned equipment replacement cycle, ensuring you can benefit earlier from the latest technology
 
Buckingham Leasing Ltd Contract Hire Asset Finance

Contract Hire (operating lease + inclusive maintenance package)

Contract hire is an operating lease (see above) that includes a professional maintenance package, usually provided by the equipment supplier.

Key benefits of contract hire

  • Known running costs; the monthly rental in this agreement includes a fixed cost to cover maintenance and servicing costs
  • Lower cost repairs with preventative maintenance; although a dealer maintenance plan will not cover the cost of repairs outside the warranty, the likelihood of a major breakdown is greatly reduced when equipment is well maintained