Choose hire purchase if you want to own the equipment at the end and claim the capital allowances yourself. Choose leasing if you'd rather use it, spread the cost and hand it back or upgrade. An unsecured business loan suits used, specialist or bespoke kit that a lender won't take as security, and you own it from day one.
7 min read · Updated October 2026 · Reviewed by Ashley Thomas, Director
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The main differences are who owns the asset, when VAT is paid and who claims the tax allowances. The table sets them side by side.
Terms are usually matched to how long the kit will earn its keep.
Hire purchase spreads the cost of an asset over fixed instalments, and ownership passes to you once everything is paid, including a small option-to-purchase fee at the end. Until then the finance company owns it, which is why it's the lender's main security.
You can usually put down a deposit, trade in an existing machine or add a balloon payment. A balloon is a larger final sum that lowers the monthly instalments but leaves a bigger bill at the end, so you'll need a plan to pay it.
It can. HMRC normally treats hire purchase as a supply of goods at the outset, which is why VAT falls due at the start, but where the final payment is large enough that buying the asset isn't a foregone conclusion, the agreement may be treated as a supply of services, with VAT spread across the payments like a lease. Ask the lender and your accountant before you sign.
A finance lease covers most of the asset's value over the term, so you carry most of the risk and benefit of using it even though you never own it. An operating lease covers only part of the value, and the lessor takes back an asset it expects to resell or lease again.
At the end of a finance lease you usually have three options:
You can't normally buy the asset at the end of a finance lease, as that would make it closer to hire purchase. Operating leases suit kit that dates quickly, such as IT, because the lessor carries the residual value risk. Contract hire is a form of operating lease used mainly for vehicles, and cars sit largely outside this guide.
An unsecured loan is often better when the asset is hard for a lender to value or resell, or when you want to own it outright from the start. You pay the supplier and the kit is yours, with no charge over it, so it's easier to sell or modify later.
It also helps when the "equipment" is really a fit-out, software or installation work that an asset finance lender won't touch. Capito arranges unsecured business loans over £25,000 and up to £1 million, with some lenders giving decisions in as little as 2 hours. Expect it to cost more than asset finance, since the lender has no asset to fall back on, and most will want a personal guarantee from the directors. If cash flow is the real issue, see business loan vs invoice finance.
Asset finance lenders lend against what the kit would fetch if they had to sell it, so resale value drives the decision and the terms. Plant, HGVs and mainstream machine tools are straightforward because there's a deep second-hand market, whereas a bespoke production line or kit built into a building is much harder to place.
Age matters for the same reason. Many lenders fund used equipment but will look at its age at the start and end of the term. If the asset is too specialised or too old, the usual routes are an unsecured loan or refinancing other kit you already own outright.
A VAT-registered company buys a new machine for £100,000 plus £20,000 VAT. Here's how the cash leaving the business on day one, and the allowances, might look under each option (illustration only).
The loan figures assume it covers the net price only. If the upfront VAT is a problem, ask the lender how it handles it before you sign. If a large VAT bill is what's holding you back, our guide to funding a VAT or corporation tax bill covers the options.
This section is general information, not tax advice, and the rules change, so check with your accountant before you choose.
Usually, yes. Under hire purchase you're treated as the owner for capital allowances once the asset comes into use, so you can claim on the payments due under the contract from that point, but not on the interest. The Annual Investment Allowance gives 100% relief on up to £1 million of qualifying plant and machinery a year, new or used.
Under a finance lease the lessee generally doesn't claim capital allowances, because the lessor owns the asset; you deduct the rentals instead. There are exceptions for some longer leases, known as long funding leases, where the lessee can claim.
Companies can claim full expensing, a 100% first-year allowance, on new and unused main-rate plant and machinery, which includes assets bought on hire purchase. Budget 2025 announced a 40% first-year allowance on main-rate spending from 1 January 2026, and the main-rate writing-down allowance falls from 18% to 14% from April 2026. Used kit doesn't qualify for full expensing, though it can still qualify for the AIA.
Hire purchase VAT is usually charged upfront on the full price, while lease VAT is added to each rental. If you're VAT-registered you can normally reclaim either, so the real difference is timing.
For sole traders and partnerships of two or three partners, hire purchase and hire agreements can be regulated consumer credit or consumer hire. Capito only arranges finance over £25,000 for business purposes, which is generally outside that regime.
Usually, yes, from when the asset comes into use, on the payments due under the contract but not the interest. The AIA limit is £1 million a year; check with your accountant.
It's a larger final payment that reduces your monthly instalments. You'll need cash, a refinance or a sale to pay it, and a large balloon can change how VAT is treated.
You usually return the asset, keep it on a low secondary rental or have it sold and take an agreed share of the proceeds. You don't normally become the owner.
Yes, many lenders fund used kit, though they'll look at its age and resale value and may limit the term. Very old or specialist kit is often better suited to an unsecured loan.
Yes, if it's owned outright and has a resale market, a lender can advance against it and you repay over a fixed term.
Often, especially on unsecured loans and for younger companies. Asset finance sometimes needs one too, depending on the asset and the accounts.
Buying equipment? Tell us about the kit and your business, and a specialist will set out hire purchase, leasing and loan options. Finance over £25,000.
Get funding optionsCapito is a Commercial Finance Broker, not a lender. Capito Finance Limited is not authorised or regulated by the Financial Conduct Authority. Finance is subject to the lender's assessment. This is general information, not tax advice; speak to your accountant.
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