Hire Purchase Vs Lease – Which One Is Right for You?
Leasing and hire purchase are some of the asset financing options available in the modern market. Most of the items we aspire to own in modern times can be expensive. From smartphones, kitchenware, electronics, and even solar products, we might not have enough money to make cash payments.
When you choose to hire purchase, you immediately gain possession of the asset after making the down payment. You will have the chance to utilize the item before making full payment. This is one of the major benefits of hire purchase.
Leasing, on the other hand, is a contractual agreement where you pay the lessor to use their asset. The payments are made within a given period of time. Here we explore the major differences between the two financing options.
The decision on the financing option to take depends mostly on the value of a given asset. Lease agreements are ideal for costly assets such as machinery, land, and property. Lease agreements are usually between two businesses. Hire purchase is ideal for less costly items such as household furniture, and electronics.
Differences between leasing and hire purchase
When you purchase furniture, TVs, kitchen appliances, or any other assets on hire purchase terms, you acquire possession immediately you make the down payment. One is also required to make monthly payments to fully acquire ownership of the items. On the other hand, at no point does one becomes the owner of the asset in a lease agreement unless it is a rent-to-own agreement. One will have to buy the asset before the expiry of the lease.
When you buy items on hire purchase, you require paying a fraction of the total cost as the down payment. This is called the principal amount. One needs to clear the total cost by paying monthly installments. On the contrary, one doesn’t require a down payment when it comes to leasing.
The value of a given asset is one of the primary considerations when choosing between hire purchase and lease.
Lease agreements usually cover enormous assets such as vehicles, machinery, property, and land. They thus need a longer duration. Hire purchase agreements are the ideal choice for household or personal items such as smartphones, TV sets, household furniture, etc. Payments are thus made within a shorter duration when compared to lease agreements.