Difference between Hire Purchasing and Leasing
|
Basis |
Hire Purchasing |
Leasing |
|---|---|---|
|
Meaning |
Hire Purchasing involves acquiring an asset through a series of installment payments over a specified period. |
Leasing involves renting an asset from the owner (lessor) for a specified period in exchange for periodic payments. |
|
Duration |
Duration of hire purchasing are longer months to years. |
Duration of leasing are shorter and customizable. |
|
Ownership Transfer |
In hire purchasing, the buyer gets ownership of the asset after completing paying installments. |
In leasing, the owner remains the same throughout the lease period. |
|
Payment Structure |
With hire purchasing, the buyer pays installments until they own the asset. |
In leasing, the lessee makes regular payments to use the asset for a set time. |
|
Maintenance and Insurance |
In hire purchasing, the buyer is responsible for maintenance and insurance. |
In leasing, the owner usually handles maintenance and upkeep. |
|
Flexibility |
Hire purchasing terms are often fixed once agreed upon, offering less flexibility. |
Leasing is more flexible; lessees can often change terms or upgrade assets. |
|
Tax Treatment |
Interest portion of hire purchase payments may be eligible for tax deductions as a business expense. |
Lease payments may be treated as operating expenses and deducted from taxable income. |
|
End of Term Options |
With hire purchasing, ownership is gained, and no more payments are needed. |
Leasing allows options like buying, returning, or renewing the lease at the end. |
|
Risk Exposure |
In hire purchasing, the buyer takes on the risk of asset depreciation or damage. |
In leasing, the owner retains ownership and risk. |
|
Contract Termination |
Hirer purchase can terminate before ownership (subject to fees). |
Breaking a lease can have legal consequences. |
Difference between Hire Purchasing and Leasing
Hire Purchasing and Leasing are both methods of acquiring assets without the need for an upfront purchase. However, they differ in terms of ownership, payment structure, and the transfer of risk. Hire Purchasing involves acquiring an asset through a series of installment payments over a specified period; whereas, Leasing involves renting an asset from the owner (lessor) for a specified period in exchange for periodic payments.