UK asset finance calculator

How asset finance payments are calculated

With hire purchase the lender buys the asset and you pay for it in equal instalments, usually after a deposit. Each period interest is charged on the balance you still owe, and the payment is set so the balance reaches zero, or reaches the balloon payment if you have chosen one, at the end of the term. You own the asset once the last payment and any option to purchase fee are paid.

Terms of 12 to 84 months and monthly payments are the most common. The calculator takes a term of up to ten years, with monthly or quarterly payments, and lets you choose whether each payment falls at the end of the period (arrears, usual for hire purchase) or at the start (in advance, usual for leases).

Worked example: a £60,000 machine over four years

Buy a £60,000 machine, before VAT, on hire purchase with a 10% deposit of £6,000, a 9% nominal rate and a four-year term, paid monthly. VAT at 20% is £12,000 and you pay it in cash at the start, so you need £18,000 up front. You finance £54,000. The payment is £1,343.79 for 48 months, and the total interest is £10,502.03.

You pay £82,502.03 in total, including the VAT. If you are VAT registered you reclaim the £12,000, leaving a cost of £70,502.03. The cost of the finance is 17.50% of the price, and the APR with fees included is 9.38%, slightly above the 9% nominal rate because it is the effective annual rate. After 12 months you still owe £42,257.97, having paid £4383.48 of interest in the first year.

Hire purchase and finance leases

A finance lease rents the asset for a fixed term. The residual value left at the end lowers the rentals, you return the asset or buy it, and VAT is charged on every rental instead of once at the start. Choose the type of finance that matches your quote, and use the payments-in-advance setting if the first rental is due on day one.

Take a £72,000 asset on a three-year finance lease with a £6,000 initial rental, a 30% residual of £21,600 and a 9% nominal rate, paid in advance. The rental is £1,562.19 before VAT and £1,874.63 with VAT. If you return the asset you pay £74,686.68 in total, and the VAT is reclaimable if you are VAT registered.

Balloon payments and the option to purchase fee

A balloon is a final lump sum that lowers the regular payments. On a £80,000 asset with a 20% deposit, a 7.2% nominal rate and five years, the payment is £1,273.32 with no balloon. A 25% balloon of £20,000 cuts it to £995.41, but total interest rises from £12,399.47 to £15,724.63 because you owe more for longer.

Lenders usually charge an option to purchase fee with the final payment, and some add a documentation fee. A £450 documentation fee added to the finance and a £90 option to purchase fee on a £52,000 asset with a 15% balloon, a 10% deposit, 9% and four years give a payment of £1,040.21, a final payment of £7,890.00 and fees of £540.00. The APR with those fees is 9.93%.

VAT on asset finance

On hire purchase VAT is charged on the full price of the asset when the agreement starts. You can pay it in cash or add it to the amount financed. A VAT-registered business normally reclaims it, so it is a cash-flow cost rather than a real cost. A business that cannot reclaim VAT, such as a business that makes exempt supplies, carries the whole amount.

On a £45,000 asset with a 10% deposit, 10.5% over three years, VAT of £9,000 added to the finance and no reclaim, you finance £49,500, pay £1,608.87 a month and pay £62,419.35 in total. Choose 5% for reduced-rate assets and 0% for zero-rated or exempt assets, and say whether you are VAT registered.

Flat-rate quotes

Some brokers quote a flat rate, which charges interest on the amount financed for the whole term, not on the falling balance. It looks cheaper than it is. A 5.5% flat rate over three years on £54,000 financed costs £8,910.00 of interest and a payment of £1,747.50, and with a £150 documentation fee and a £50 option to purchase fee the APR is 10.95%. Compare quotes on APR.

Tax relief on asset finance

Buying an asset on hire purchase lets you claim capital allowances on its cost in the year you start using it, and you can usually deduct the interest as a business expense. The Annual Investment Allowance is £1 million a year. Companies buying new equipment can also claim full expensing of 100% in the first year, or a 50% first-year allowance for special rate assets. Sole traders and partnerships cannot use full expensing, and cars are excluded.

The estimate uses your tax rate and the share of the cost you relieve in year one. At the 25% corporation tax rate with 100% relieved in year one, the £60,000 example gives £16,095.87 of relief in year one, made up of £15,000 on the asset and the relief on the first year of interest. Relief on the interest over the whole term is £2,625.51, and the net cost after tax relief is £52,876.52.

If you do not claim in full in year one, the rest is relieved by writing down allowances, 14% a year on the main pool from April 2026 (18% before) and 6% on the special rate pool, so the relief arrives later. Corporation tax is 25% on profits over £250,000 and 19% up to £50,000, with marginal relief between. On a lease the rentals are usually the deduction, not the asset cost. Check the treatment with your accountant.

Finding the interest rate from a quoted payment

Machinery and equipment are often quoted as a monthly payment with no rate. Choose The regular payment (find the rate) under what you know, enter the price, deposit, balloon, term and the payment, and the calculator finds the nominal yearly rate that gives it, then shows the APR with fees. Take an £80,000 machine with a 20% deposit, a 25% balloon and a five-year term, quoted at £995.41 a month. The implied interest rate is 7.20%, the amount financed is £64,000.00, the interest is £15,724.63 and the APR with fees is 7.44%.

On the default £60,000 asset with a 10% deposit over four years, a quoted payment of £1,343.79 a month implies a rate of 9.00%, £10,502.03 of interest and an APR of 9.38%. The payment must be more than the amount financed spread over the term, or the rate would be negative, and it cannot be more than a 100% yearly rate would need.

What this estimate leaves out

This is a planning estimate for a fixed-rate agreement. It does not check eligibility, security or personal guarantees, and it does not model a variable rate, a rate that steps up, a changing balloon, refinancing or a settlement figure. The tax relief is a simple estimate of the amount of tax saved, not tax advice, and it ignores the timing of payments, the resale value of the asset and the details of your accounting treatment. Lenders may round payments or compound interest differently, so the figures in your agreement are the ones that count.

For a simple hire purchase figure, use the hire purchase calculator.

To compare with an unsecured loan, use the business loan calculator.

Use the right country page

This page stays in pounds and uses UK terms: hire purchase, finance lease, VAT, option to purchase fee, APR as the effective annual rate and UK capital allowances. The country choices above the inputs open separate local pages. Choosing United States opens the equipment loan calculator, which uses sales tax, a down payment, a purchase option fee and the US Section 179 deduction. The inputs reset and amounts are not converted.

Inputs for the asset finance calculator