Asset finance cost compare: HP vs finance lease vs operating lease
A £50,000 asset over 5 years costs different amounts under hire purchase, finance lease and operating lease, and lands on your tax return three different ways. This page works through all three on the same asset, with monthly payment, total cost and tax treatment side by side.
What this calculates
The same £50,000 capital purchase, financed three ways, over a 5-year term, at illustrative UK panel rates as of mid-2026. The output is monthly payment, total cash out across the term, and the headline tax treatment under each product. The aim is to let you sanity-check a quote before signing, and to surface the trade-offs that monthly cost alone hides.
The maths in plain English
Each product takes the same £50,000 asset and applies a different financing structure:
- Hire purchase: 10% deposit (£5,000), then monthly instalments amortising the £45,000 balance plus interest at an indicative 8% APR equivalent over 60 months, plus a £150 option-to-purchase fee at the end.
- Finance lease: no deposit, monthly rentals amortising the full £50,000 plus a finance margin at indicative 9% APR equivalent over 60 months, then a peppercorn secondary rental.
- Operating lease: no deposit, monthly rentals based on £50,000 minus an estimated residual of £15,000 (30% of cost), financed at indicative 9% APR equivalent over 60 months. Asset returns to the lessor at end of term.
Rates and residuals are illustrative and vary by asset class, lessee profile and panel lender. UK asset finance APR equivalents typically run 5% to 15% depending on those factors.
Worked example: £50,000 plant asset, 5-year term
| Factor | Hire purchase | Finance lease | Operating lease |
|---|---|---|---|
| Deposit | £5,000 | £0 | £0 |
| Indicative APR | 8% | 9% | 9% (on financed portion) |
| Amount financed | £45,000 | £50,000 | £35,000 (cost minus £15k residual) |
| Approximate monthly | £912 | £1,038 | £727 |
| Total payments over 60 months | £54,720 + £150 fee | £62,280 | £43,620 |
| Total cash out (incl. deposit) | £59,870 | £62,280 | £43,620 |
| Asset at end of term | Owned by business | Controlled via secondary rental | Returned to lessor |
Operating lease wins on monthly and total cash out because you do not finance the residual value; the lessor recovers that on resale. Hire purchase wins on ownership: at the end of 60 months you have a £50,000 asset that could be worth £15,000 to £25,000 in the second-hand market, which offsets the higher total cash out.
| Factor | Hire purchase | Finance lease | Operating lease |
|---|---|---|---|
| Deposit | £5,000 | £0 | £0 |
| Indicative APR | 8% | 9% | 9% (on financed portion) |
| Amount financed | £45,000 | £50,000 | £35,000 (cost minus £15k residual) |
| Approximate monthly payment | £912 | £1,038 | £727 |
| Total payments over 60 months | £54,720 plus £150 fee | £62,280 | £43,620 |
| Total cash out (incl. deposit) | £59,870 | £62,280 | £43,620 |
| Asset at end of term | Owned by business | Controlled via secondary rental | Returned to lessor |
Source: FundBiz asset finance cost compare worked example
Illustrative UK panel rates as of mid-2026. Monthly payments are standard amortisation of the financed amount at the stated APR over 60 months. Rates and residuals vary by asset class, lessee profile and lender; UK asset finance APR equivalents typically run 5% to 15%.
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### Worked example: £50,000 plant asset financed three ways over 5 years | Factor | Hire purchase | Finance lease | Operating lease | | --- | --- | --- | --- | | Deposit | £5,000 | £0 | £0 | | Indicative APR | 8% | 9% | 9% (on financed portion) | | Amount financed | £45,000 | £50,000 | £35,000 (cost minus £15k residual) | | Approximate monthly payment | £912 | £1,038 | £727 | | Total payments over 60 months | £54,720 plus £150 fee | £62,280 | £43,620 | | Total cash out (incl. deposit) | £59,870 | £62,280 | £43,620 | | Asset at end of term | Owned by business | Controlled via secondary rental | Returned to lessor | Source: FundBiz asset finance cost compare worked example Illustrative UK panel rates as of mid-2026. Monthly payments are standard amortisation of the financed amount at the stated APR over 60 months. Rates and residuals vary by asset class, lessee profile and lender; UK asset finance APR equivalents typically run 5% to 15%.
“The gross cash-out comparison flatters the operating lease. It books nothing for the £15,000 to £25,000 of residual value the HP buyer still owns at month 60, and it ignores tax timing: Full Expensing on a hire purchase can shelter most of the asset cost against year-one profit, while lease rentals deduct evenly across the term. Run the comparison after tax and after residual value with your accountant before letting the monthly figure decide a six-figure deal.”
Tax treatment side by side
| Tax factor | Hire purchase | Finance lease | Operating lease |
|---|---|---|---|
| Capital allowances | Lessee claims (AIA up to £1m, Full Expensing on qualifying main-rate plant) | Lessor claims; lessee deducts rentals as expense | Lessor claims; lessee deducts rentals as expense |
| Interest deductibility | Interest portion of each instalment is deductible | Full rental is deductible (interest implicit) | Full rental is deductible |
| VAT timing | VAT on full cash price up front, recovered next VAT return | VAT on each rental as invoiced | VAT on each rental as invoiced |
| Balance sheet | On balance sheet from day one; depreciated over useful life | On balance sheet under FRS 102 / IFRS 16; right-of-use asset and lease liability | On balance sheet for leases over 12 months under IFRS 16; off balance sheet under FRS 102 small entity rules |
The combination of Full Expensing on hire purchase and 60-month deductibility on leases means the after-tax cost of all three products is closer than the gross numbers suggest. A formal tax analysis with your accountant is essential before committing on a six-figure deal.
When each one fits
Hire purchase fits when the asset has a long useful life beyond the financing term, you want ownership at the end, and you can use the up-front capital allowance to materially reduce taxable profit in year one. Common for plant, manufacturing equipment, commercial vehicles you intend to run for 7 to 10 years.
Finance lease fits when you want effective control of the asset for its full useful life, you want to spread VAT, and ownership is not strategically important. Common for IT infrastructure, specialist equipment with low resale value.
Operating lease fits when the asset depreciates fast or has known replacement cycles, you want predictable costs without disposal hassle, and you would prefer to upgrade rather than own. Common for fleet vehicles, computer hardware, certain medical equipment.
FAQs
What is hire purchase?
A finance product where the business pays a deposit (typically 10% to 20%), then fixed monthly instalments over the term, then a small final option-to-purchase fee (often £100 to £250). Title transfers to the business at the end. The asset sits on your balance sheet from day one and you claim capital allowances.
What is a finance lease?
The business pays monthly rentals over the primary term (3 to 7 years), then can typically continue to pay a peppercorn rental (a small annual amount) for a secondary term. Title remains with the lessor. The asset sits on the balance sheet under FRS 102 / IFRS 16, and rentals are deducted as an expense. Capital allowances usually flow to the lessor.
What is an operating lease?
A rental over a defined term (often 2 to 5 years) where the lessor retains ownership and bears residual value risk. The lessee returns the asset at the end. Typical for vehicles, IT equipment, plant where you do not want to own at end of life. Under IFRS 16 the asset and lease liability appear on the balance sheet for most operating leases above 12 months.
Which has the lowest monthly cost?
Operating lease usually has the lowest monthly cost because the lessor only finances the depreciation portion (asset value minus expected residual), not the full price. A finance lease costs more monthly because it amortises the full value. Hire purchase is typically the highest monthly because of the deposit-plus-amortisation structure, though total ownership cost is often the lowest.
Which has the lowest total cost?
Hire purchase usually has the lowest total cost when you intend to keep the asset, because you own it at the end (residual value stays with you). Operating lease has the highest total cost over multiple replacement cycles because you pay the lessor a margin on the residual risk. Finance lease sits in the middle.
What about VAT on each option?
Hire purchase: VAT is paid up front on the cash price (recovered through the next VAT return if the business is VAT-registered). Finance lease and operating lease: VAT is added to each rental as it is invoiced and recovered each VAT period. The rental approach is gentler on cashflow.
What about capital allowances?
Hire purchase: lessee claims capital allowances on the asset (Annual Investment Allowance up to £1m, Full Expensing on qualifying main-rate plant from April 2023). Finance and operating leases: lessor claims allowances; lessee deducts the rental as a business expense. Over the asset life the cash position often equalises but the timing differs.
When does each one fit?
HP fits when you want to own the asset and use AIA / Full Expensing. Finance lease fits when you want to control the asset for its useful life but not take ownership risk. Operating lease fits when the asset depreciates fast (vehicles, IT) or you want predictable replacement cycles without disposal hassle.
Run the matcher
Tell us the asset, the cost, your trading time and your turnover. We surface the panel lenders most likely to approve, with indicative HP, finance lease and operating lease quotes for the same asset side by side.
Open asset finance matcher →Related reading: Asset finance overview, FRS 102 lease changes 2026.
By Oliver Mackman. Last reviewed 12 June 2026.