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Advantages of lease purchase/hire purchase

• No need to outlay the full cost of the asset up front from your working capital or credit facilities – put your spare capital to use in areas where your business really needs it
• Spread the cost of the asset over a fixed period of time that it is chosen by you (typically 3-5 years)
• Easier to forecast your cashflow as the agreement is fixed term and the monthly amounts won’t fluctuate
• You can budget more effectively each month with no unexpected bills, knowing what is coming out of your account to pay for the assets you have acquired on finance
• Your tax liability will be reduced because lease rental can be 100% offset against your pre-tax profits
• Peace of mind that you will not need an overdraft or credit card that may be withdrawn at short notice by your bank
• Service elements, maintenance contracts and other intangible items can sometimes be written into the lease agreement, so you only have one payment coming out
• The funder you are using for your finance will usually obtain better discounts on finance due to their economies of scale, this is usually passed onto you as the customer.
• Usership not ownership – avoid heavy servicing and repair bills for old plant, equipment and technology
• Forget depreciation costs – and forget the problems of trying to sell old equipment at a decent price – simply hand it back at the end of the lease

Disadvantages of lease purchase/hire purchase:
• Leasing means that your business will be legally tied into a finance agreement, and payments must be made on time each month otherwise this will affect your credit rating and your ability to secure further finance in the future.
• Leasing can sometimes be more daunting than buying outright, due to all the paperwork required in comparison to simply purchasing the equipment by invoice
• Businesses normally have to be VAT-registered to take out a leasing agreement
• The asset you are leasing is not owned by your business, the exception being hire-purchase which involves making a final payment after your payment obligations have been met in full and the lease has ran the full duration of its minimum term.

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