Truck Lease Vs Commercial Hire Purchase: What is the difference?

So, what’s the difference between the two?

Truck leasing is a type of short-term rental agreement. This means that you will only have the use of the truck for a set period of time, after which you will need to return it to the leasing company (or purchase it from them at a pre-determined price). Truck CHP, on the other hand, is a type of finance agreement that allows you to eventually own the truck once the contract is finished.

Here's a bit more detail:

What is commercial hire purchase?

Commercial hire purchase, or CHP, is a type of finance agreement that allows you to eventually own the truck once the contract is finished. This means that you will make regular payments over a set period of time, after which the truck will be yours.

One of the advantages of CHP is that it can be a more affordable option than leasing, as you will eventually own the truck and so don’t have to keep making payments. It can also be a good option if you need to use the truck for a long period of time, as you won’t have to worry about returning it or buying it at the end of the contract.

However, there are also a few disadvantages to commercial hire purchase. One is, depending on the lender, you may need to make a large down payment upfront, which may not be feasable for all businesses. There is also the risk that the value of the truck could depreciate over time, meaning that you could end up owing more than the truck is worth.

What is truck leasing?

Truck leasing is a type of short-term rental agreement. This means that you will only have the use of the truck for a set period of time, after which you will need to either return it to the leasing company or pay a pre-determined "residual" or "balloon" payment in order to take ownership of the vehicle yourself.

One of the advantages of leasing is that it can be a more flexible option than hire purchase, as you can choose the length of the lease to suit your needs. It can also be a good option if you don’t need to use the truck for a long period of time, as you can simply return it at the end of the lease.

However, there are also a few disadvantages to leasing. One is that it can be a more expensive option than hire purchase, depending on the interest rate and the term of the lease.

Another disadvantage is that, at the end of the lease you will be forced to either hand back the vehicle and have to replace it with another truck, or you will have to pay a lump sum from anywhere between 10% and 50% (or more) of the original purchase price of the truck. This amount is referred to as a "balloon" or "residual" payment and is set out in your loan offer and your loan contract.

The key differences between the two

The main difference between truck leasing and CHP is that, with leasing, you will only have the use of the truck for a set period of time and will then need to return it to the leasing company. At no time will you own, nor have any equity in the vehicle - unless you pay the residual. With commercial hire purchase, you will eventually own the truck once the contract is finished.

Another key difference is the upfront cost. With truck leasing, you won't need to make a large down payment upfront. You will, however, be required to pay the first monthly lease payment in advance.

With CHP you may need to pay a significant upfront deposit, depending on your loan offer. Monthly repayments for a commercial hire purchase are payable in arrears.

The tax treatment of truck leasing and hire purchase are also very different. In the case of a truck lease, the entire monthly instalment is treated as a deductible business expense because, after all, you are "renting" the truck from the financier. For the same reason, and because the truck legally belongs to the finance company, you won't be able to claim the depreciation of the truck as a tax deduction.

With truck commercial hire purchase, both the interest component of your monthly repayment that you pay and the progressive depreciation of the truck can be claimed as business expenses. This can make a substantial difference in your tax position compared to leasing, so you should seek professional advice.

Why choose truck lease?

Truck lease can be a good option for businesses that need a flexible financing solution. It can also be a good option for businesses that don’t need to use the truck for a long period of time.

One of the main advantages of truck lease is that it can be a more flexible option than hire purchase. This is because you can choose the length of the lease to suit your needs.

For example, if you only need the truck for a short period of time, you can choose a short-term lease. If you need the truck for a longer period of time, you can choose a longer-term lease.

Another advantage of truck lease is that it can be a more affordable option than hire purchase. This is because you will only have the use of the truck for a set period of time and so you won’t need to commit to regular payments over a long period.

Depending on the vehicle you buy, your business structure, the prupose and expected term of use, it may also be to your advantage to claim the full amount of your monthly lease repayments on your tax.

Why choose truck CHP finance?

Commercial hire purchase can be a good option for businesses that need a more affordable financing solution. It can also be a good option for businesses that need to use the truck for a long period of time.

One of the main advantages of commercial hire purchase is that it can be a more affordable option than leasing. This is because you will eventually own the truck and so you won’t need to keep making payments.

Another advantage of CHP is that it can be a good option if you need to use the truck for a long period of time. This is because you can keep the truck for as long as you need it and then sell it when you’re finished with it.

CHP may also offer better tax treatment, depending on a range of factors. For example, being able to claim the first year depreciation on your truck in addition to the interest component of your monthly repayments could prove valuable when buying a new truck which will depreciate in value significantly the moment you drive it out of the truck sales yard ... i.e it's no longer a new truck.

The bottom line

Both truck leasing and commercial hire purchase have their own advantages and disadvantages. The best option for your business will depend on your individual needs and circumstances. If you need a flexible financing solution, truck lease could be the best option for you. If you need to use the truck for a long period of time, CHP finance could be the best option for you. Whichever option you choose, make sure you do your research and compare your options to make sure you get the best deal for your business!

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