Difference Between Hire Purchase and Leasing

Hire Purchase vs Leasing

Should you stumble upon the dilemma of choosing between leasing and hire purchase, you must first understand the situation you are in and consider the subtle differences of each. When you do a hire purchase, you actually purchase what you pay for. To be specific, you are buying the opportunity to purchase at an agreed upon future time. The hire purchaser is just given the option to buy the asset. He can eventually get the title or rights to the asset when he has fully met the agreed-upon terms of the last installment.

In leasing, there’s no concern with regard to ownership since you are just using something in the expense of a certain payment (rental). You become the lessee of the one who gave you permission (lessor) to use his or her asset (equipment, property, etc.). At the end of a lease, you’ll end up having nothing as you just paid for the item or asset for the duration of your usage.

The situation is different for a hire purchase as you can come up with an agreement to buy out the item or asset. To some, this proves to be disadvantageous as you seem to be paying twice more for that same asset or property. The money you’ve already invested (during the first installments) prior to the end of your contract was never added to the agreed last installment price if you buy the asset in the end. Maybe it will be better for you if you just get a loan and then use the loan proceeds to pay for the entire cost of the asset up front.

Leasing is also not bulletproof. If you are engaged in a lease for a long period of time, the result may even be worse than when engaging in a hire purchase as you will end up paying more than half of the original price of the asset. But still, this is the right thing to do if you really don’t have any plans of owning the asset you’re using. This agreement is also best for short-term users of properties like those who frequently move from place to place due to work-related reasons.

Summary:

1.The most important characteristic of a lease agreement is the separation of ownership between the lessor and the lessee.
2.In a hire purchase, there is an ownership of the property by the hire purchaser only after the payment of the agreed upon last installment.
3.In a hire purchase, the asset will be passed to the hire purchaser at the end of the agreement.
4.A lease is best for those who have no plans of owning the asset. It is also ideal for those who temporarily make use of assets.

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