Asset Finance Explained

Asset finance can often be referred to by different names, such as contact hire, operating lease, sale and leaseback etc.

In reality there are really two forms of asset finance which other products then fall under – Hire Purchase and Leasing.

Hire Purchase

At the end of the agreed period of finance, after all the payments have been made, you become the owner of the asset. This can be both automatically or after a final settlement, often referred to as a balloon payment.

Usually as part of the agreement you will also be responsible for the maintenance and repair of the asset.

For tax reasons, you are viewed as the owner of the asset and are eligible to claim capital allowance tax.

Finance Leasing

As part of a leasing agreement the ownership of the asset is never passed to you, although some lenders will allow you to lease the equipment for a second term at a significantly lower rate. Leasing equipment with a view to purchasing it at a later date is sometimes a safer solution as equipment can becomes obsolete and loses its value.

As you never become the owner of the asset the lender will claim the capital allowance gains and usually pass these savings on by offering you a lower monthly repayment.

Another benefit of a finance leasing agreement is you can generally claim back the full cost of the lease as a trading expense.
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