You may have heard the term “asset finance” before but aren’t quite sure what it means. Asset finance is a general term used to describe the various financing options available to businesses to purchase or lease assets. These assets can be anything from vehicles and machinery to office equipment and computers.
There are many different types of asset finance, each with its own advantages and disadvantages. The main types of asset finance are leases, hire purchase agreements, and loans. Let’s take a closer look at each of these in turn.
Leases
A lease is effectively a long-term rental agreement. You make regular payments over the course of the lease period (usually 2-5 years), after which you return the asset to the leasing company. Leases are often used for vehicles, as they can be structured so that your monthly payments are lower than if you were to purchase the vehicle outright. One downside of leasing is that you never actually own the asset, so you may have to replace it more frequently than if you had purchased it outright.
Hire Purchase Agreements
A hire purchase agreement is similar to a loan, in that you make regular repayments over a fixed period of time (usually 2-5 years). However, at the end of the hire purchase period, you own the asset outright. This type of asset finance is often used for larger purchases such as machinery or office equipment. One potential disadvantage of hire purchase agreements is that if you default on any payments, you may lose ownership of the asset altogether.
Loans
With this type of financing, you borrow a lump sum from a lender and then make regular repayments over a fixed period of time (usually 1-6 years). Loans can be used for almost any type of asset, from vehicles and machinery to office equipment and computers. The main advantage of using a loan to finance your asset purchase is that you own the asset outright from the start; however, the downside is that loans usually have higher interest rates than other types of financing options.
Conclusion:
There are many different types of asset finance available to businesses, each with its own advantages and disadvantages. The three main types of asset finance are leases, hire purchase agreements, and loans. Carefully consider your needs before deciding which type of financing is right for you.