| Factor | Hire Purchase (HP) | Contract Hire (Leasing) |
|---|---|---|
| Ownership | Yours at end of term | Never - hand back at end |
| Monthly cost | Higher (paying full value) | Lower (rental only) |
| Mileage | No restriction | Agreed limit - excess charges |
| Tax treatment | Capital allowances (AIA) | Fully deductible rental expense |
| Maintenance | Your responsibility | Often included in package |
| Residual risk | Yours (you own the van) | Lender's risk |
| Balance sheet | Asset appears on balance sheet | May be off-balance sheet |
When hire purchase wins
HP is better when you want to own the van, need to claim capital allowances (particularly the 100% AIA in year one), have no mileage restrictions, or plan to modify or personalise the vehicle. HP also avoids excess mileage charges, which can make contract hire expensive for high-mileage businesses.
When contract hire wins
Contract hire delivers the lowest monthly payment, includes maintenance packages that simplify fleet management, and removes residual value risk. It's particularly well-suited to fleet operators who rotate vehicles regularly and don't want the complexity of vehicle disposal at the end of the term. For businesses that want simplicity and predictable costs above all else, contract hire is typically the right choice.
Finance Lease as a middle ground
Finance Lease sits between HP and contract hire. You don't own the van (like contract hire), but you benefit from lower payments and VAT spread (like contract hire), and you can claim capital allowances in some structures. It's a good option for VAT-registered businesses that want the cashflow benefit of Finance Lease but are open to selling the van at the end rather than handing it back.