In today’s economic climate it’s more important than ever to be as efficient and effective with your cash and cash flow as you can, no matter whether you run a business or you’re simply controlling the household budget. Looking for alternative ways to purchase investments isn’t new, but sometimes options like leasing and hire purchase are forgotten about.
If you’re thinking of making a capital purchase, today’s the day to look at all the options. In this article, we’ll explain what is meant by both terms and what makes them different from either paying in cash or taking out a loan.
Leasing is the term used to describe an arrangement whereby an individual or a business obtains the right to use machinery, vehicles or equipment on a rental basis. If you run a business, you might think you only have the choice between buying the vehicles and equipment you need outright using your cash reserves or funding them with an upfront part-payment and borrowing the rest of the money from your bank, but that’s not the case. When you work this way, you own the items you’ve bought from Day 1 and are responsible not only for repairing them when they break down but also for replacing them when they become obsolete.
When you buy items outright for your business, unless you’re in a pretty unique situation, as soon as you’ve made that capital purchase, the asset you’ve invested in will start to depreciate. What this means is that you’ve used your hard-earned cash to fund something that your business needs to function, for example a van, a truck or a computer and then you start to see the value of that asset go through the floor.
Leasing on the other hand allows you to have full use of the asset over a fixed period without having the responsibility of owning it. At the end of the period of the lease, you’ll have the chance to either walk away, renew the lease to obtain a new item or to carry on using the asset you’ve leased at a nominal rent. This way of working allows you to have constant use of an up to date asset with minimal (if any) initial outlay as well as benefitting from tax relief on your rental payments. This means that your cash reserves remain in tact and your cash flow is optimised.
Hire Purchase arrangements enjoy all the benefits of leasing, but the difference is that it’s written into the agreement that you have the right to own the asset at the end of the rental period. When it comes to tax relief, only the interest charges in this case can be offset against tax.
Often called Asset Finance, both of these arrangements can be highly attractive for businesses and individuals alike and can be used to provide access to vans, trucks, buses, IT and manufacturing equipment as well as cars.
If you’d like to find out more about Leasing or Hire Purchase, why not get in touch for a completely no obligation discussion?