Hire purchase (HP) is a popular way to finance expensive assets by making an initial deposit followed by steady payments over a set period of time. For those who want to control how much they pay each month, a hire purchase agreement with a balloon payment defers part of the purchase cost to the end of the term, reducing monthly payments but requiring a larger, final "balloon" payment to secure ownership.
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This structure can be handy for buyers who want to reduce their monthly payments for the duration of the term, especially on high-value items like cars or big equipment. In this article we’ll take a look at how hire purchase balloon payments work and how to decide if they’re right for you.
In a hire purchase with a balloon payment, the cost is split into three parts: an upfront deposit, monthly payments, and a deferred "balloon" payment. This final payment reduces the monthly cost, but you’ll need to pay the full balloon amount to secure ownership at the end of the term.
A balloon payment can be a good option if you want lower monthly payments while still working towards ownership, but you’ll need to make sure your cash flow management is ready to handle that larger end payment.
The length of the term on hire purchase gives you more time to plan your payments. That’s because hire purchase agreements often come with some flexibility, so you can adjust based on your cash flow:
While hire purchase can help you get the assets you need while spreading the cost, a balloon payment can be a challenge for businesses that suddenly need to find a lot of cash on hand. If that final balloon payment is looming and you’d rather not dip into your cash reserves, you could consider a Flexi-Loan from iwoca.
To find out how much you could borrow and learn more about our small business loans, why not check out our business loans calculator?
Yes, some HP agreements include balloon payments to reduce monthly costs, but not all HP plans do.
In a hire purchase agreement, ownership of the asset is only transferred once all agreed payments have been made, including any final or balloon payment, if applicable. Throughout the term, the lender retains ownership of the asset, which acts as security for the loan. Once the last payment is complete, ownership shifts to you, allowing full rights to the asset without any further payments or conditions.
Missing payments can result in charges and affect your credit, so if cash flow is tight, contact your lender early to discuss options, like a possible payment holiday.
Many lenders provide online calculators. Just enter the deposit, term, and balloon amount (if applicable), and you’ll get an estimate of monthly payments. Or, try our business loan calculator to see how a Flexi-Loan could cover your needs.
A hire purchase payment holiday is a temporary pause on monthly payments – often offered by lenders if you’re experiencing cash flow issues or struggling to meet payments.
During this break, payments may be deferred, but interest typically continues to add up. Make sure to check the terms with your lender, as payment holidays can impact the overall cost and extend your agreement term.
Late payment charges on a hire purchase agreement are fees applied when payments are not made on time. These charges vary by lender and are designed to encourage you to make payments on the agreed dates.
Repeated late payments can also negatively impact your credit score and may lead to further financial penalties or repossession of the asset, so it’s best to contact your lender if you’re facing payment difficulties.
In the hire purchase system, you make regular payments toward the eventual ownership of an asset. Unlike a straightforward instalment payment system, where you own the item once it’s paid off, hire purchase means ownership is only transferred at the end of the agreement, after all payments (including any final balloon payment) are complete.
