Asset finance: hire purchase, leasing and refinance explained

Asset finance is a way for a business to get the use of a vehicle, machine or piece of equipment and pay for it over time, with the asset itself as the lender’s security. The Finance & Leasing Association (FLA), the trade body, defines it as a term used to describe leasing and hire purchase solutions for businesses.

It is a large market. FLA members wrote £40.3bn of asset finance new business in 2025, 1% more than in 2024, including more than £24bn to small and medium-sized businesses. Those are FLA member figures, not a count of the whole market. Asset finance is one of the funding types in our business finance guides.

You choose the asset, a finance company pays the supplier, and you pay the finance company in instalments or rentals over an agreed term. It usually runs like this:

1. Choose the asset and the supplier, and get a written quote.
2. Decide whether you want to own the asset at the end. That decides between hire purchase and a lease.
3. Apply with details of the asset and your business. A full application may involve a hard credit search.
4. The lender assesses the asset and your business, subject to status and its own criteria.
5. You sign the agreement and pay any deposit or advance rental.
6. The finance company pays the supplier and the asset is delivered to you.
7. You make the payments for the term. At the end you own the asset, return it, or carry on renting it, depending on the agreement.

The main types are hire purchase, the finance lease, the operating lease and asset refinance. The principal difference between hire purchase and leasing is who owns the asset.

Hire purchase is the route to choose if you want to own the asset, and our guide to how hire purchase works for a business covers it in detail.

Lenders finance identifiable business assets that hold their value, and they assess both the asset and the business that will pay for it. Commonly financed assets include:

• Commercial vehicles and fleets, which we cover on our transport and logistics finance page
• Plant, production machinery and construction equipment
• Agricultural machinery
• Medical, dental and catering equipment
• IT and office equipment

What a lender weighs up:

• The asset: its age, condition and likely resale value, and whether it is new or used.
• The business: time trading, accounts, bank statements and credit history.
• Affordability: whether your cash flow covers the payments.
• Your contribution: a deposit or advance rental reduces the lender’s risk.
• A personal guarantee: directors may be asked for one. Read what a personal guarantee commits you to first.

Asset finance costs the interest or finance charge built into your payments, plus any fees in the agreement. We do not quote rates, because lenders price each asset and each business individually. The components to look for:

• Interest or finance charges: built into each instalment or rental.
• Deposit or advance rental: paid at the start. It is part of the price, not an extra cost, but it is cash out on day one.
• Arrangement or documentation fee: some lenders charge one for setting the agreement up.
• Final payment or fee: on hire purchase, a payment may be needed at the end to take ownership.
• Valuation: on a refinance, the lender may want the asset valued or inspected.
• Running costs: on hire purchase and a finance lease, maintenance and insurance are normally yours.
• Early settlement and end-of-lease charges: check what it costs to settle early, and what condition a leased asset must be returned in.

Ask each lender for the total amount payable in pounds, including every fee and the VAT, and compare that figure. Our guide to comparing lenders beyond the headline rate shows how.

Hire purchase is broadly taxed as if you had bought the asset, while a lease is taxed as paying for its use. The table sets out what GOV.UK and HMRC guidance say.

• The Annual Investment Allowance is £1 million and is open to sole traders, partnerships and limited companies. Cars do not qualify.
• Full expensing, a 100% first-year allowance on new and unused main-rate plant and machinery, is for companies only. Ask your accountant whether it applies to an asset on hire purchase.
• A 40% first-year allowance applies to new and unused main-rate plant or machinery bought on or after 1 January 2026. Cars are excluded.
• The main-pool writing down allowance fell from 18% to 14% in April 2026. The special rate pool is 6%.

Capzy does not give tax advice. Check the treatment of your own agreement with your accountant before you choose a structure for tax reasons.

The main risk is committing to fixed payments on an asset the lender can take back if you stop paying.

• The payments are fixed for the term, whether or not the asset is earning.
• On a lease you never own the asset, and settling early can be costly.
• On a finance lease, repairs and insurance are your responsibility even though the asset is not yours.
• An asset can become outdated before the agreement ends.
• Refinancing an asset you own turns it into security for a new debt.
• A personal guarantee puts your own assets behind the agreement.

Asset finance is the right tool when a specific asset will earn its keep over several years and you would sooner keep your cash for trading. It fits when:

• The asset directly earns revenue, such as a delivery van or a production machine.
• You want the term of the finance to match the asset’s working life.
• You replace equipment regularly, where an operating lease can suit.
• You own unencumbered equipment and need to release cash from it.

It is the wrong tool when:

• You need money for wages, stock or tax. That is a working capital need, not an asset purchase.
• The asset will be obsolete or worn out well before the agreement ends.
• You have the cash and paying outright would not strain the business.
• The payments would stretch your cash flow too thin.

The main alternatives are paying cash, an unsecured loan and, for premises, property finance.

• Buying outright: no finance cost and ownership from day one, but the full price leaves your account at once.
• An unsecured business loan: the lender takes no security over the asset, although a personal guarantee is typically required.
• Short-term hire: for equipment you need for one job and not for years.
• Property finance: asset finance does not fund premises. That is the job of a commercial mortgage, or of a bridging loan when the timing is tight.

Capzy is a credit broker, not a lender: we introduce your business to lenders that offer hire purchase, leasing and refinance, and help you compare what comes back. We are paid by the lender. You can check your funding options with a soft search, which does not affect your credit score; a full application to a lender may involve a hard search.

Any offer is subject to status and lender criteria, and the lender makes the decision. To see who lends in this market, browse the asset finance lenders in our directory.