Hire purchase

A hire purchase agreement is a finance structure where the lender retains ownership of an asset while the borrower hires and uses it, with ownership transferring to the borrower only once all payments, including any final balloon payment, have been made. It differs from a chattel mortgage mainly in when ownership transfers — immediately under a chattel mortgage, only at the end of the term under hire purchase — which can matter for accounting treatment and, in some structures, for GST timing that a borrower's accountant should confirm. Hire purchase remains available for equipment and vehicle finance, though a chattel mortgage has become the more commonly used structure for many business borrowers in recent years, and the right choice depends on the borrower's accounting and tax position rather than a single universally better option. Lenders assess hire purchase applications similarly to a chattel mortgage, against the asset's value and the borrower's serviceability.

Related

Asset & equipment finance · Chattel mortgage · Balloon payment