Asset finance is quoted in a way that makes comparison hard on purpose. A flat rate looks half what it is, a balloon hides cost in the last payment, and the tax treatment differs depending on whether you own the asset or rent it. This prices the agreement properly and then tells you whether financing it beats paying cash.
Asset finance calculator
Hire purchase, finance lease and operating lease, with balloon payments, flat or reducing balance rates, and a lease versus buy comparison after tax. For business assets only. Nothing is sent anywhere and nothing is stored.
1. The asset and the agreement
2. Lease versus buy, after tax
This section compares paying cash against financing it. Leave it alone if you only want the payment. Set the tax rate to zero to switch the tax modelling off entirely.
Cheapest route, in today’s money
A flat rate is not an interest rate
Asset finance is quoted flat more often than any other kind of business lending. A flat rate charges the stated percentage on the original amount financed for every year of the term, even though you are paying that amount down every month. Because you have use of a bit under half the money on average, the true cost works out at roughly double the headline.
Switch the rate type in the calculator and you can see it. A 4.5% flat rate over five years produces almost exactly the same monthly payment as 8.5% on a reducing balance. If one funder quotes you 4.5% and another quotes 8.5%, they may be offering you the same deal. Always ask which basis a rate is quoted on before comparing two quotes, and use the illustrative annual rate here to put them on the same footing.
Hire purchase, finance lease and operating lease
Under hire purchase you are buying the asset in instalments and you own it at the end, on payment of the option to purchase fee. The asset goes on your balance sheet, you claim capital allowances on the full cost from the start, and the interest element of each payment is deductible. VAT is normally payable in full up front.
Under a finance lease the funder owns the asset and you rent it for substantially all of its useful life. You do not get capital allowances, because you do not own it. Instead the rentals are deductible against profit. VAT is charged on each rental rather than up front, which helps cash flow.
Under an operating lease or contract hire you rent the asset for a period shorter than its life and hand it back, with the funder taking the residual value risk. Rentals are deductible, there is no balloon and no disposal to worry about, and maintenance is often bundled in.
The right answer depends on whether you want the asset at the end, what the tax position does for you, and whether you would rather carry residual value risk or pay someone else to.
The tax treatment is what usually decides it
This is the part that no simple payment calculator captures, and it can reverse the answer entirely.
If the asset qualifies for full relief in year one, through full expensing or the annual investment allowance, then owning it, whether outright or on hire purchase, is very attractive, because you deduct the entire cost against this year’s profit. Set the year one allowance to 100 in the calculator and watch ownership move ahead.
If the asset only attracts a writing down allowance, the relief drips out over many years and is worth far less in today’s money. Set the year one allowance to 18 and the writing down allowance to 14 and leasing usually wins, because a lease gives you full relief on every rental as you pay it rather than a slow trickle on the capital cost. That single change flips the recommendation on the same asset at the same price.
This is a genuine planning point rather than an academic one, and it is the reason to have the conversation with your accountant before signing rather than after.
What your cash is worth changes the answer too
Paying cash costs you the use of that cash. The calculator prices that through the figure you enter for what your cash is worth, and the result is sensitive to it. On the default example, at 8% financing wins. Drop it to 2%, meaning the money would otherwise sit in a low interest account, and paying cash wins. Raise it to 15%, meaning you are capital constrained and every pound is working hard in the business, and financing wins comfortably.
Be honest with this number. If you would genuinely have to turn away work or delay another purchase to buy this asset outright, it is high. If the money is sitting idle, it is low.
Balloons and residual values
A balloon payment is a large sum due with the final instalment. It cuts the monthly payment, which is the point, but the balance it defers keeps accruing interest for the whole term, so the total cost rises. Put a balloon into the calculator and compare the total paid, not the monthly figure.
The real question with a balloon is where the money comes from. Refinancing it at the end is usually possible but never guaranteed, and if the asset is worth less than the balloon at that point you have negative equity in it. On an operating lease that risk sits with the funder instead, which is part of what you are paying for.
What this does not include
- VAT treatment in detail. It differs between hire purchase and leasing, and the timing difference matters to cash flow even where the net cost is the same.
- Long funding lease rules, which can move a lease into the capital allowances regime and change everything above.
- Accounting treatment under FRS 102, which is not the same as the tax treatment and affects your balance sheet and covenants.
- Maintenance, insurance, tyres and downtime, which on vehicles and plant often exceed the finance cost over the term.
- Early settlement, termination sums, and what happens if you want out halfway through.
- Whether the funder will lend against that asset at all. Age, type and resale market all matter.
Other ways to fund it
Asset finance is not always the cheapest route to equipment. If the asset is modest and you have property, a term facility may price better. Our business loan calculator prices an unsecured or secured term loan on the same basis so you can compare, and the commercial mortgage affordability calculator shows what a property could support if refinancing it is the better source of capital.
If you are already carrying several agreements and the monthly total is the problem, the consolidation calculator works out whether refinancing them together is genuinely cheaper, and it handles the early termination sums that make asset finance awkward to settle.
Get the asset funded properly
Asset finance pricing depends heavily on the asset itself, not just on your accounts. The same business will get very different terms on a new CNC machine, a five year old HGV and a piece of soft equipment with no resale market. We place across funders who each have their own appetite by asset type. Tell us what you are buying and we will come back with what is actually available.
Or try our other calculators.
This calculator is provided for illustration and general information only. It is not tax, accounting or financial advice, not a quotation, and not an offer of finance. The tax modelling is a simplified illustration which assumes relief is obtained at the end of each year at a single marginal rate, that the business has sufficient profit to use the relief, and that the allowances you enter apply to the asset. It ignores the long funding lease rules, the corporate interest restriction, VAT timing and accounting treatment. Confirm the position with your accountant before committing. Capital allowance rates and thresholds change, so check current rates on gov.uk. Bolton Business Finance Ltd is a commercial finance broker and not a lender, and is not authorised or regulated by the Financial Conduct Authority. We arrange non-regulated, business purpose commercial finance only.