Lease purchase and contract hire are some of the payment options available to a buyer when in the market to purchase an asset. Each of these financing methods has pros and cons. It is thus vital to understand them before choosing any of them.
Lease purchase agreements
Lease purchase contracts are considered rent-to-own arrangements between the seller and the buyer. While this payment option looks similar to hire purchase payments, there are some notable differences. A good example is when one is out to purchase a home. If you settle for this payment method, you will initially pay the rent. However, the rent in this arrangement might be higher than the market price. The additional rent that one pays goes towards the down payment on the property.
The main difference between a lease purchase and leasing is that one has an obligation to purchase the assets at the end of the leasing contract. One makes a lump sum payment, also known as a balloon payment, which allows one to acquire ownership of the property, car, or any other assets.
Contract hire is the official name for leasing. When one chooses contract hire, they will acquire assets from the leaser to utilize for the period specified in the leasing agreement. However, at the end of the agreement, one is required to return the assets to the seller. This means that one doesn’t acquire ownership of the items at any given point. You will be paying for using the items throughout the contract and return them to the owner when the agreement expires with no further obligations. You can negotiate to extend the lease or you can find new items or sellers.
The best part about contract hire is that the rentals are fixed. This means that one can easily budget and make appropriate plans. One doesn’t have to worry about depreciation of the assets or even disposal when they settle for contract hire.