Forking large amounts of cash to purchase assets may not be viable to a business or even a homeowner in some instances. If you are running a new business, you might not have all the cash to purchase the assets that you require. Buying assets such as furniture, vehicles, or even real estate property at large amounts of money will have a great effect on your cash flow. It is the same case for homeowners. When you build, rent or even purchase a new home, you might not have all the money to buy new furniture sets, kitchen appliances, and electronic appliances that are necessary. This means that one needs to look for alternative financing options.
Renting assets rather than physically owning them is one of the financing options you can utilize. This makes sense, especially for items that you won’t need in the long run. It is also a considerable choice for items whose value is expected to depreciate over time. Leasing involves acquiring assets from the leaser. You will be required to pay monthly installments for the period specified in the lease agreement. After the expiry of the agreement, you will have no further obligations. You can choose to extend the lease and retain the items, or you can move on to another lessor.
Hire purchase is almost similar to leasing, although there are some notable differences. This involves paying an upfront amount of cash as a down payment. This is usually a fraction of the total cost. After the down payment, you acquire the assets and utilize them as your own. You will be required to make monthly payments as per the contract. The good part about a hire purchase is that you will become the owner of the items after paying the last monthly installment.
Considering hire purchase vs leasing
Both hire purchase and leasing have benefits as well as shortcomings. The decision thus depends on your individual circumstances and needs. Here are some of the factors to check:
· Frequency of use
If you only need a given asset for a short period of time, it is not advisable to purchase it through a cash purchase or even a hire purchase. Leasing is the most desirable option in such cases.
One also needs to check when they will require upgrading a given asset. It is not worth investing in an item that will be outdated soon. A short-term lease makes sense for such items.
When you settle for leasing, there are some restrictions on how to use the given items. Since you will b returning the items to the leaser, you might be charged additional costs if you didn’t consider the restrictions. Hire purchase doesn’t have such restrictions, considering that you will become the owner at the end of the contract.