External finance – Hire purchase and leasing
Hire purchase
Hire purchase is used to purchase an Something a business owns that has monetary value such as a delivery van or money in the bank., such as a delivery van or piece of equipment. A A part payment made to secure the purchase of an item. is paid and the remaining amount for the asset is paid in monthly instalments over a set period of time. The business does not own the item until all payments are made.
| Advantages | Disadvantages |
| Expensive assets can be purchased and paid back over time | Interest is charged on hire purchase items |
| Equipment is not owned until the final payment is made |
| Advantages | Expensive assets can be purchased and paid back over time |
|---|---|
| Disadvantages | Interest is charged on hire purchase items |
| Advantages | |
|---|---|
| Disadvantages | Equipment is not owned until the final payment is made |
A delivery van is a company asset that is often financed through hire purchase.
Leasing
Leasing is a way of renting an asset that the business requires, such as a coffee machine. Monthly payments are made and the leasing company is responsible for the provision and upkeep of the leased item.
| Advantages | Disadvantages |
| Large amounts of money are not required up front to lease machinery | Over time it can be a more expensive way to obtain assets |
| The leasing company are responsible for repairs and maintenance | Assets are never owned by the business |
| Advantages | Large amounts of money are not required up front to lease machinery |
|---|---|
| Disadvantages | Over time it can be a more expensive way to obtain assets |
| Advantages | The leasing company are responsible for repairs and maintenance |
|---|---|
| Disadvantages | Assets are never owned by the business |