Is hire purchase a loan?

In economic terms it works like one: the business has the asset, pays for it in instalments with interest built in, and ends up owning it. In legal form it is a hiring with an option to buy, and the financier owns the asset until the last payment. In New Zealand and Australia, personal property securities law treats it as a security interest, much like a secured loan. In the UK the financier's ownership keeps the asset outside the business's own property until title passes.

Can I sell an asset that is on hire purchase?

Not as your own until the agreement is paid off, because the financier still owns it. The usual route is to ask the financier for a settlement figure, pay it, often from the sale proceeds on the day, and pass clear title to the buyer. If the asset will sell for less than the settlement figure, the business must make up the difference before the sale can complete.

What happens if I can't keep up hire purchase payments?

The agreement will set out the financier's rights, which usually include ending the hiring, recovering the asset and selling it. The sale proceeds, less the costs of recovery and sale, go against the amount owed, and the financier can generally claim any shortfall from the business. In the UK, a sole trader or small partnership on a regulated agreement has consumer credit protections that can limit both. Talking to the financier before payments are missed often leaves more options, such as a revised schedule or a voluntary sale at a better price than a forced one.

Does hire purchase appear on the balance sheet?

Usually, yes. Because ownership is expected to pass to the business, its accounts generally record the asset and the amount still owed, much as they would for a loan, whichever accounting framework is used. A lender reading the accounts adds that liability to the business's debt. If it cannot be found on the balance sheet, the lender looks for it in the notes and on the register.

// WORKED EXAMPLEHOW THE AGREEMENT WORKS

Hire Purchase: a Worked Example

Use it from the first day; own it after the last payment.

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-07

// THE SHORT ANSWER

Hire purchase lets a business use an asset now and own it later. The financier acquires the asset and lets the business use it for a run of instalments; title moves across once the last instalment and any option fee are paid. For the financier the attraction is that it owns the asset throughout, so on default it takes back its own property rather than enforcing security over someone else's. For the business's other lenders it works the other way: until the agreement is paid off, the asset sits outside their security, and in New Zealand and Australia the registration rules decide how firmly.

BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// MAKE THE CALL

Issue 11 — The Term Sheet War. A nine-year client brings a competitor's term sheet: 40 basis points inside your pricing, covenant-lite, and a Friday deadline. Your call first, then the senior banker's.

Read the file →

// 01 — WHY THE FINANCIER KEEPS THE TITLE

A lender that takes a charge over a machine has a claim over the borrower's property. A hire purchase financier has something simpler: the machine is its own. The business has possession and the right to use it, and an option to buy it, which it typically exercises by making the final payment and any option fee. If the instalments stop, the financier's remedy is to end the hiring and recover the asset, sell it, and claim any shortfall under the agreement.

That is why hire purchase is often easier to obtain than general borrowing for vehicles, plant and machinery. The financier's credit decision rests largely on the asset: what it will sell for at each point in the term, how easily it can be found and moved, and how fast it loses value. The business's wider finances still matter, but less than they would to an unsecured lender.

// 02 — HOW AN AGREEMENT RUNS

The working parts are much the same everywhere. The business usually pays a deposit, then fixed instalments over a term matched to the asset's working life, sometimes with a larger final payment. Title passes when everything is paid, sometimes with a nominal option-to-purchase fee. A business that wants to finish early asks for a settlement figure, the balance plus any early-termination charges the agreement sets. Until then the business cannot sell the asset as its own.

Where the markets differ is in how third parties see the financier's ownership. In New Zealand and Australia, personal property securities law treats a hire purchase agreement that secures payment, as one normally does, as a security interest, whatever its form. The financier registers on the PPSR, and its purchase money security interest ranks ahead of an earlier general security over the same asset if it is registered in time and, in Australia, the registration says it is a purchase money interest. For equipment that is not inventory, the window runs from the day the business takes possession: 10 working days in New Zealand, 15 business days in Australia.

In the UK, the asset remains the financier's property and is not a charge created by the company, so it is not registered at Companies House and a lender's floating charge does not reach it. If the business goes into administration, the financier needs the administrator's consent or the court's permission to repossess. In Australia, for GST purposes, an agreement made on or after 1 July 2012 is treated as a purchase, so a registered business can generally claim the full credit up front, even if it accounts for GST on a cash basis, rather than instalment by instalment.

// 03 — THE EXAMPLE

A joinery manufacturer, constructed for this page like every figure in it, acquires a five-axis machining centre costing US$310,000 on hire purchase. It pays a 10% deposit of US$31,000 and hires the balance over four years at 8.5%, with a US$200 option fee due with the last instalment. The joinery's bank already holds a general security agreement over all its assets, registered three years earlier. The financier's registration goes on the PPSR on the sixth working day after delivery.

Amount financed 310,000 − 31,000 = 279,000

Monthly instalment 279,000 over 48 months at 8.5% ≈ 6,877

Month 30: instalments stop

Balance owed under the agreement ≈ 115,800

Machine sold by the financier 95,000

Repossession and sale costs − 8,000

Net recovered 87,000

Shortfall claimed from the joinery ≈ 28,800

The financier recovers three-quarters of what it is owed from its own asset and is an unsecured creditor for the rest, subject to what the agreement allows it to claim. The bank recovers nothing from the machine. Its general security was registered first, but the financier's purchase money interest, registered within the window, ranks ahead on that asset, and the sale did not cover even the financier's claim.

Had the financier registered on day 20 instead, the special priority would have been lost in either market, and the bank's earlier registration would generally have put it first on the machine. Registration timing is a matter of days, which is why the financier's back office watches it closely.

// 04 — HOW IT DIFFERS FROM A CHATTEL MORTGAGE AND A LEASE

The three are told apart by who holds title and when. Under a chattel mortgage the business owns the asset from the start and the financier holds security over it. Under hire purchase the financier owns it until the end, and then the business does. Under a finance lease the financier owns it throughout. The business pays most of the cost and either pays or guarantees a residual or has an option to buy, but ownership does not pass merely because the payments are made. An operating lease leaves the asset, and what it will be worth, with the financier.

For a credit desk the economics of the first three are close. Each is debt secured on one asset, repaid over its working life. The differences are legal and practical: what happens in an insolvency, how the tax and accounting treat it, and whose name is on the asset if it has to be found and sold.

DEFINED IN ONE PARAGRAPH → · EQUIPMENT LOAN VS LEASE → · PRODUCT FILE: EQUIPMENT FINANCE →

// 05 — WHERE IT DECIDES A FILE

A bank reading a business with hire purchase debt does three things. It counts the instalments in debt service and the balances in leverage, because they are borrowing in everything but name. It searches the register, because hire purchase financiers are where vehicles, plant and machinery leave the bank's security, and a valuation that includes them overstates what the bank could recover. And it reads its own facility agreement, whose negative pledge and limits on other borrowing usually permit asset finance only up to a stated amount.

It matters again when a business is in difficulty. Each hire purchase financier has its own asset and its own remedy. A business whose production depends on a financed machine can be stopped by one financier acting alone, so a restructuring needs those financiers' agreement as well as the bank's.

WHAT YOUR BANK HOLDS AS SECURITY → · RESIDUAL VALUE, WORKED →

// SOURCES

The documents the statements on this page rest on. Each was opened and checked when cited.

New Zealand Personal Property Securities Act 1999, sections 17 and 73 (version as at 5 April 2025) — Applies the Act to a hire purchase agreement that secures payment, and gives a purchase money security interest in collateral other than inventory priority if perfected within 10 working days after the debtor obtains possession — sections 02 and 03.
Australian Personal Property Securities Act 2009 (Compilation No. 22), sections 12(2)(e) and 62(3) — Lists a hire purchase agreement as a security interest, and gives a purchase money security interest in goods other than inventory priority if registered within 15 business days after the grantor obtains possession — sections 02 and 03.
UK Insolvency Act 1986, Schedule B1, paragraphs 43(3) and 111(1) — Prevents repossession of goods held under a hire-purchase agreement while a company is in administration without the administrator's consent or the court's permission — section 02.

// QUESTIONS PEOPLE ASK

Is hire purchase a loan?: In economic terms it works like one: the business has the asset, pays for it in instalments with interest built in, and ends up owning it. In legal form it is a hiring with an option to buy, and the financier owns the asset until the last payment. In New Zealand and Australia, personal property securities law treats it as a security interest, much like a secured loan. In the UK the financier's ownership keeps the asset outside the business's own property until title passes.
Can I sell an asset that is on hire purchase?: Not as your own until the agreement is paid off, because the financier still owns it. The usual route is to ask the financier for a settlement figure, pay it, often from the sale proceeds on the day, and pass clear title to the buyer. If the asset will sell for less than the settlement figure, the business must make up the difference before the sale can complete.
What happens if I can't keep up hire purchase payments?: The agreement will set out the financier's rights, which usually include ending the hiring, recovering the asset and selling it. The sale proceeds, less the costs of recovery and sale, go against the amount owed, and the financier can generally claim any shortfall from the business. In the UK, a sole trader or small partnership on a regulated agreement has consumer credit protections that can limit both. Talking to the financier before payments are missed often leaves more options, such as a revised schedule or a voluntary sale at a better price than a forced one.
Does hire purchase appear on the balance sheet?: Usually, yes. Because ownership is expected to pass to the business, its accounts generally record the asset and the amount still owed, much as they would for a loan, whichever accounting framework is used. A lender reading the accounts adds that liability to the business's debt. If it cannot be found on the balance sheet, the lender looks for it in the notes and on the register.

THE IN-TRAY · ONE MINUTE

Make the call on one file.

A short file on the ground this page covers. Every option opens with how far it sits from a senior banker’s read.

THE CALL · THE LOAN · CAPACITY

A manufacturer wants a five-year loan for a machine. Its own appraisal shows a strongly positive net present value, but the machine saves little cash in years one to three and a lot in years four to eight.

What does the bank need to see?

5 MORE ON THE LOAN · CAPACITY →WHERE DO YOU READ FROM? THE PLACEMENT →

THE GLOSSARYIN ONE PARAGRAPHHire purchase (HP) What is hire purchase, and how does it differ from a lease or a loan?