Asset finance costs

Asset finance costs and deposits explained

Financing a van, a piece of plant or a production line involves a different cost structure to a standard loan, with deposit levels and VAT treatment varying by product. Here's how the main costs stack up.

Category: Costs & pricing

Product: Asset Finance

Typical deposit: Often 0%–20% depending on asset and lender
VAT treatment: Varies by product — HP, lease or contract hire
Term: Commonly 2–7 years
Rate basis: Usually fixed for the term

Deposit levels and what drives them

Deposit requirements range from nil on strong-covenant deals to around 10-20% on higher-risk assets or newer businesses. Softer assets (IT equipment, fit-out) generally require a higher deposit than hard assets like vehicles or plant, which hold resale value and give the lender better security.

Hire purchase vs lease costs

With hire purchase you eventually own the asset, and VAT is typically payable upfront on the full price, which affects cash flow. Finance and operating leases instead spread VAT across the rental payments and can suit businesses that prefer to keep assets off balance sheet or upgrade regularly — the trade-off is you don't own the asset at the end.

Interest rate factors

Rates on asset finance reflect the asset's residual value and how easily it could be resold if repossessed — hence vehicles and plant machinery typically price more keenly than bespoke or fast-depreciating equipment. Your trading history and the strength of your latest accounts also feed into pricing.

Fees beyond the monthly payment

Expect a documentation or option-to-purchase fee at the end of an HP agreement (often nominal), and potentially an early settlement adjustment if you clear the balance ahead of term. Refinancing existing assets to release cash carries its own valuation and legal costs, covered in our refinancing guide.

Frequently asked

Why do some lenders ask for a deposit and others don't?

It depends on the asset type and your business's trading strength. Strong accounts and a resaleable hard asset can unlock nil-deposit deals, while softer assets or newer businesses typically need a deposit to offset lender risk.

Is leasing cheaper than hire purchase?

Not automatically — leasing spreads VAT and avoids ownership costs, but you don't build equity in the asset. Which is cheaper overall depends on how long you'll use the asset and your VAT position.

Can I claim tax relief on asset finance?

Ownership-based products like HP can attract capital allowances, while lease rentals are typically treated as a deductible business expense. Speak to your accountant about which structure suits your tax position.

What happens if I want to settle early?

Most agreements allow early settlement, sometimes with a small rebate of future interest or an adjustment fee. We'll check this before you sign if early settlement is likely.

Does asset finance affect my other borrowing?

It typically sits alongside other facilities rather than replacing them, and because it's secured against the specific asset, it doesn't usually tie up other business assets as security.

Get an asset finance quote with no surprises

Call 0345 2690628 for a transparent cost and deposit breakdown.

Call 0345 2690628 Send your deal details