Whether your business needs a new car, equipment or other commercial vehicles, it is a good idea to consider the benefits of Hire Purchase, especially if your business doesn’t have the funds to purchase the asset outright at that particular time. Hire Purchase is a contract in which the financier (the owner of the asset) allows you (the hirer) the right to possess and use an asset in return for regular payments, essentially like a lease. However, ownership of the asset is instead transferred to you once you make the final payment (which sums all of your payments up to the asset’s original value + interest); this means you gain equity in the asset as you go with each instalment made. Hire Purchase is also commonly known as Commercial Hire Purchase and Corporate Hire Purchase and is a popular method of payment amongst many businesses.
With a Hire Purchase there may be significant tax advantages as you are able to claim the interest repayments as well as the depreciation of the asset whereas with a standard lease the actual repayments are the tax-deductible part of the equation. Businesses who account for GST on an accrual basis are entitled to claim an Input Tax Credit for all of the GST contained in the purchase price of the goods in their next Business Activity Statement.
Balloon Payment Benefits
With Hire Purchase, you may have the opportunity to reduce your regular repayments by setting a balloon payment. This is a larger payment, made at the end of the term, which is made to finalise the purchase. The larger the balloon payment at the end, the smaller the regular repayments becomes.
• No deposits are necessary, as the vehicle/equipment being purchased is normally sufficient security for the finance.
• Repayments are fixed for the life of the loan, allowing you to plan and manage your cashflow much better.
• Hire Purchase spreads the cost of expensive items over an extended time period; this reduces monetary stresses and the need to save a large amount of money beforehand.
• It can be more beneficial than simply leasing an asset because ownership eventually gets transferred to you.
• An easy way of obtaining a much needed asset when you have limited collateral or credit available.
Here at The Quinn Group we can assist you in reviewing the contracts for your proposed Hire Purchase agreement, as well as help you obtain Hire Purchase for a much needed business asset. For more information on this or any other legal or accounting advice for your business submit an online enquiry. You can call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.