Hire purchase for business vehicles

Commercial hire purchase is the least talked-about of the three main business vehicle structures, but it’s been around for a long time and still suits plenty of businesses. The idea is simple: you hire the vehicle, and once you’ve made every payment, it’s yours.

How does commercial hire purchase work?

1. The lender buys the vehicle from the dealer or seller.
2. Your business hires it under an agreement with a fixed term and regular payments.
3. You use the vehicle from day one, and you’re responsible for running costs, insurance and maintenance.
4. Ownership passes to your business with the final payment. That final payment can be a larger lump sum if you’ve chosen one to lower the regular payments.

In the ATO’s language, a vehicle under a hire-purchase agreement is one of the ways a vehicle can be held for business — alongside owning or leasing it — which is relevant to which expenses can be claimed. The detail is a question for your accountant.

How does it compare with the other structures?

	Hire purchase	Chattel mortgage	Finance lease
Owner during the term	Lender	Your business	Lender
Owner at the end	Your business, on final payment	Your business	Lender, unless you pay the residual
Lump sum at end	Optional	Optional balloon	Residual
Hand back option	Not usually	No — sell or trade	Usually

If you want ownership from the start, see the chattel mortgage. If you’d rather keep the option of handing the vehicle back, see the finance lease.

Why would a business choose hire purchase?

• Certainty of ownership at the end. Unlike a lease, there’s no decision about whether to take the vehicle — it becomes yours.
• Accounting or tax preferences. Some businesses’ accountants prefer the way hire purchase is treated. That’s an individual question.
• Long-life vehicles. Trucks, trailers and specialised vehicles that you’ll run for many years suit a structure that ends in ownership.

If you’d like to know which structure fits your next vehicle, enquire in about 60 seconds — enquiring doesn’t touch your credit file.

What about the final lump sum?

Like a balloon on a chattel mortgage, a larger final payment on a hire purchase lowers the regular payments because less is repaid during the term. It also means a bigger payment at the end, when you take ownership. If you plan to keep the vehicle, make sure you’ll have the funds — or a plan to refinance — when that payment falls due. Our balloon payments page covers how lenders set these limits, and the fleet cost planner shows the effect on the amount you pay down.

Is hire purchase suitable for used vehicles?

Yes. Hire purchase can be used for new and used vehicles from dealers, and sometimes for private sales. For used vehicles, lenders look at the vehicle’s age at the end of the term and its condition. As with any used purchase, a PPSR search on the VIN confirms whether finance is already registered against it.

Who handles registration and insurance?

Even though the lender owns the vehicle during the term, your business is generally responsible for registration, insurance, maintenance and running costs. Lenders typically require comprehensive insurance with their interest noted. Read the agreement carefully so you know who is responsible for what.

What can go wrong?

• Not planning for the final payment. A big final lump sum needs a plan.
• Assuming it’s a lease. You usually can’t hand a hire purchase vehicle back to end the agreement.
• Skipping the accountant. The tax treatment differs from other structures; get advice before you sign.

Hire purchase for trucks and trailers

Hire purchase is often used for vehicles and equipment that stay in a business for many years, such as light trucks, trailers and plant. Because ownership passes to the business at the end, there’s no residual decision to make, and the vehicle keeps working without repayments once the agreement is complete. See light truck finance and trailer finance for how those purchases are usually structured.

Paying out early

Plans change. If you want to sell or upgrade the vehicle before the hire purchase ends, you’ll generally need to pay out the remaining balance first, because the lender still owns the vehicle. Some agreements include early payout costs, so read the contract and ask about early termination before signing if you think you might change vehicles mid-term.

A worked example (illustrative)

Imagine a landscaping business buying a tipper it expects to keep for eight years or more. The owner wants it to be the business’s outright at the end of the finance, without a decision about residuals. Their accountant prefers hire purchase for the business’s situation. They choose a term that fits their cash flow with no final lump sum, so when the last payment is made the tipper simply becomes theirs and keeps working. Your own circumstances will differ — the point is that the structure followed the plan for the vehicle, not the other way round.

Talk through hire purchase for your vehicle

Not sure whether hire purchase, a lease or a chattel mortgage suits your business? Tell us about the vehicle and how long you’ll keep it. Enquiring involves no credit check, one specialist handles your enquiry rather than passing it to a pile of lenders, and a real person will call you. Please be accurate on the form so we can recommend the right structure on the first call.

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