Hire Purchase Agreement

What is a Hire Purchase Agreement?

Hire Purchase, sometimes called Commercial Hire Purchase (CHP), is a finance option for business owners where the financier buys the asset, and you hire it from them for the agreed term. There is no actual lending or borrowing of funds involved since you are effectively hiring the equipment for business use. Similar to a lease, you can negotiate with the hirer to include a large payment at the end of the agreement however this is not mandatory.

What are the benefits of a Hire Purchase Agreement?

The main benefit of a commercial hire purchase is that your business will own the asset at the end of your agreement. Your business will benefit from not needing to purchase the asset outright, which frees up cash flow on medium-value assets such as office furniture or power tools. For this reason, hospitality businesses often use hire purchase agreements to finance commercial kitchen equipment.
CHP provides business owners the ability to buy items which they would not otherwise be able to afford. Additionally, it enables the hirer to use the equipment and generate business revenues despite not having paid for it in full.

Are there any disadvantages to Hire Purchase Agreements?

The owner may repossess the equipment without compensation if you fail to meet your payment obligations. Hirers should be cautious and avoid entering into agreements for unnecessary equipment, as sometimes, the convenience of them leads to artificial demand for products. 

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