When you think of hire purchase or lease, you may get a doubt of which is better hire purchase or lease. Both lease and hire purchase have their own advantages as well as disadvantages. You should be careful in choosing either of the one depending on situations and conditions.
Lease is a long term agreement between the owner and the renter. Lessee takes the property of the lessor in which the lessee should pay for the asset based on the contract.
Hire purchase is referred to paying the money in installment basis. After paying the total loan amount the ownership of the asset will be transferred to the buyer.
Some of the tips to choose better
- Lease is an agreement for years which may vary. When you take for lease you should pay monthly or yearly rents based on the agreement, but the asset will not be yours at the end of the agreement.
- Whereas in hire purchase you can take loan which is similar to that of lease. But here at the end of the agreement you are the owner of that property.
- Based on the financial status you may choose a correct option.
- In the hire purchase, the monthly repayments are calculated based on the amount of price you spent on the purchasing the property, interest. If there are any other loans, those are also taken into consideration
- Whereas in hire lease the monthly repayments are worked out based on the asset’s depreciation or the condition during the rental term.
- In hire purchase you may choose a balloon payment or may not choose it. But having this kind of payment in the end of the loan period will reduce the monthly payments, but this is paid at the end.
- Whereas in lease the balloon payment is a must. Here the amount of payment depends on the worth of your asset at the term end.
- In hire purchase you can claim the depreciation or non cash charge of purchase cost and also consider the loan interests, current price based on the business percentage.
- Whereas in lease you can claim monthly rental repayments based on the business percentage.
End of the term
- In the end of a lease term an offer may be provided to you to buy the asset. For purchasing the asset the amount of the money should come from your pouch.
- In the hire purchase you can keep your asset after paying the final payment. You will also get the right to sell that asset.
As said earlier both the lease and hire purchase have their own advantages and disadvantages. So the choice should be based on the financial stability and other factors.