Hire purchase against finance lease, properly compared.
The comparison almost every business arrives with, and the one most often decided on the wrong number. A lease payment is lower because less is being repaid, not because the finance is cheaper.
MS
Matt StilesEditor
Published 8 September 2026Last reviewed 8 September 2026Read time 11 min
The short version
Five lines that settle most of it.
→The lease payment is lower because less is repaid. A residual set at inception is not amortised, so a 30% residual removes roughly 30% of the amount from the schedule.
→The total is higher, not lower. The residual accrues interest for the whole term. Ending up owning the same asset costs more under a lease than under a hire purchase.
→The ownership question decides it. Where the asset will be kept, a hire purchase ends cleanly. Where it will be replaced on a cycle, a lease ends on the same day the replacement arrives.
→The tax positions genuinely diverge. A hire purchase puts the depreciation claim and the up-front GST with the business. A lease depends on the arrangement, and both are subject to the accountant’s confirmation.
→Indicative only. Every figure here is illustrative. Actual rates, fees and terms come from the lender after assessment.
The mechanism
One number explains the whole difference.
A hire purchase repays everything. Whatever is financed is spread across the term, and on the final payment the business owns the asset and owes nothing. There is no lump sum, no decision and no exposure to what the asset turns out to be worth.
A finance lease repays everything except a residual agreed before the documents are drawn. That residual is a prediction about the asset’s value at the end of the term, and because it is not in the schedule, every payment is smaller. On the final day it falls due, and the business settles it, refinances it, or hands the asset back.
Everything else in this guide follows from that. The lower payment, the higher total, the different exposure to resale value, the divergent tax treatment: all of it traces to whether the residual exists. When the two structures are described as alternatives, that is the alternative being offered.
HP amortises
100% of the amount
Lease amortises
Amount less residual
Residual band
20% to 40%
Falls due at the end
Only on the lease
The comparison
The same $80,000 asset, both structures.
Illustrative on stated assumptions, at an indicative 11% over 48 months with a 30% residual on the lease. Figures rounded, and not an offer of credit.
Hire purchase
Finance lease
Amount financed
$80,000
$80,000
Amortised across the term
$80,000
$56,000
Indicative weekly payment
~$477
~$334
Total of payments
~$99,200
~$69,500
Due at the end
Nothing
$24,000
Total to own the asset
~$99,200
~$93,500 plus the residual, ~$101,500 net of interest on it
Owned at the end
Automatically
Only if the residual is settled
Weekly difference
~$143 lower
Illustrative comparison at an indicative 11% over 48 months. Not an offer of credit.
Reading the table
What $143 a week is actually buying.
The lease saves roughly $143 a week across four years, which is around $29,700 of payments not made during the term. It then requires $24,000 on the final day. The difference between those two figures is not a saving; it is the interest that accrued on the residual while it sat unpaid, which is what the structure charges for the deferral.
That framing matters because it makes the decision comparable to something familiar. The business is borrowing $24,000 for four years at the facility rate, and using it to reduce its weekly outgoings. Whether that is worth doing is exactly the question it would ask about any other borrowing, and answering it that way is more useful than comparing two weekly figures.
Where the weekly figure is the binding constraint, the answer is frequently yes and the extra cost is worth paying. Where it is not, the lease is charging for flexibility the business does not need, and the hire purchase is straightforwardly the better deal.
Beyond the payment
Two differences the weekly figures do not show.
Resale exposure
Who is holding the risk.
Under a hire purchase the business owns the asset outright at the end and carries whatever it turns out to be worth. If it holds value the business benefits; if it does not, the business absorbs that.
Under a finance lease the exposure is concentrated at the residual. Where the asset is worth more than the residual, the business can settle or trade comfortably. Where it is worth less, the disposal exit has disappeared and the difference has to be found. That is the same risk in a sharper form, arriving on a single date.
It is also why lenders limit how high a residual they will write. A residual set optimistically transfers risk to the borrower in a way that only becomes visible at the end.
Tax and accounting
Where the positions diverge.
A hire purchase puts the business in the ordinary owner’s position. The depreciation claim sits with it subject to the accountant’s confirmation, the GST on the purchase is generally claimable in the return covering the period the agreement begins on the same basis, and the interest component of the payments is ordinarily deductible while the principal is not.
A finance lease is less uniform. New Zealand tax rules can treat some leases as sales, which changes the position materially, and the accounting treatment under NZ IFRS 16 brings most leases onto the balance sheet for entities reporting under that standard.
The practical consequence is that the tax question genuinely cannot be answered from a page like this one, and it can change the after-tax comparison enough to reverse the decision. It is worth establishing before the structure is chosen rather than after.
Which fits
Four questions that decide it.
None of these is about the asset. All of them are about the business and what it intends.
Feature
Hire purchase
Finance lease
Will the asset be kept past the term
Yes
Not necessarily
Is the weekly payment the constraint
No
Yes
Does the business want the depreciation claim
Yes, ordinarily it gets it
Depends on the arrangement
Is a lump sum at the end acceptable
Not applicable
It has to be planned for
Replacement runs on a cycle
Less well suited
Well suited
Where the answers point both ways, the deciding question is usually the first. A business that will still be using the asset in ten years is buying something a lease is not designed to give it.
Worked scenarios
Three businesses, three answers.
Illustrative scenarios on stated assumptions, with the same asset and the same rate throughout.
A workshop keeping the asset for a decade
Hire purchase, comfortably
The business can carry $477 a week without difficulty and intends to run the machine for ten years. A residual would lower the payment it can already afford and cost interest to do so.
It takes the hire purchase. Four years later the payments stop and it has six years of use costing nothing, which is the outcome the structure exists to produce.
Indicative figures
Weekly
~$477
Due at the end
Nothing
Owned
Outright, at year four
Why
The payment was never the constraint
A business replacing on a four-year cycle
Finance lease, deliberately
The business replaces this class of asset every four years and always has. A four-year lease with a residual matches the cycle exactly.
At the end the asset goes back and the replacement arrives. The residual never becomes a cash event because the exit was decided at signing, and the lower payment across the term was a genuine benefit rather than a deferral it had to fund later.
Indicative figures
Weekly
~$334
Replacement cycle
48 months
Exit taken
Returned
Why
Term matched the cycle
A business that compared weekly figures
Finance lease, by accident
The business chose the lease because it was $143 a week cheaper, intends to keep the asset indefinitely, and did not plan for the residual.
At the end $24,000 falls due on an asset it needs and cannot return. It refinances, which extends the interest and pushes the total past the hire purchase it declined. Nothing was concealed and the comparison was simply made on the wrong number.
Indicative figures
Reason for choosing
The lower weekly figure
Intention for the asset
Keep it
Exit available
Refinance only
Total cost
Above the alternative
Doing the comparison
Three steps that make it honest.
01
Add the residual to the lease
Totalling the lease payments across the term and adding the residual gives a figure comparable against the total of the hire purchase payments. That is the like-for-like figure for ending up owning the asset, and it is usually within a few thousand dollars either way.
02
Look separately at the weekly position
The totals being close is exactly why the weekly figures matter. Where the hire purchase payment is comfortable, take the lower total. Where it is not, the lease is buying something real and the extra cost is the price of it.
03
Decide the ending before signing the beginning
On a lease, that means deciding whether the residual will be settled, refinanced or the asset returned, and writing the amount and the date somewhere they will be seen. A residual planned for keeps three exits open; one that is not leaves one.
Doing it properly
Four steps that make two quotes comparable.
01
The residual is written down first
A lease quote that does not state the residual in dollars is not yet comparable to anything. The percentage is useful for understanding the structure and the dollar figure is what falls due, and it belongs at the top of the comparison rather than in a footnote at the bottom of it. Where a financier has quoted a range rather than a figure, the top of the range is the number to work with.
02
Both quotes are put on the same term
A 60-month lease against a 48-month hire purchase is a comparison of two different things and the longer one will always look cheaper weekly. Matching the terms removes the largest single distortion, and where the terms genuinely cannot be matched, the total of payments plus anything due at the end is the figure that still compares.
03
The total is calculated including the ending
Payments across the term plus whatever falls due on the final day is the honest total for a lease. Set against the hire purchase total, the difference is the price of the deferral, and it is ordinarily a few thousand dollars on a mid-sized asset rather than the tens of thousands the weekly gap implies over four years.
04
The fees are added at the end
Establishment fees, documentation fees, account fees and any early settlement provisions differ between structures and between financiers. They rarely change which structure wins and they do change the total, and a quote that presents a rate without them is describing part of the cost rather than all of it.
The part nobody asks about
What happens if the business wants out early.
Neither structure assumes the term will run to its end, and both handle an early exit, at a cost that differs between them. On a hire purchase the business ordinarily requests a settlement figure, pays it and takes clear title. The figure is not simply the remaining principal, because the agreement governs how unearned interest and any break costs are treated, and the difference between the expected number and the actual one is a common source of friction on a sale that has already been agreed.
A finance lease is less flexible in practice, because the financier owns the asset and the arrangement was priced on the assumption of a full term. An early termination figure can include a substantial part of the remaining rentals, and a business that expects to exit after two years of a four-year lease is frequently better served by a shorter term at a higher payment than by the flexibility it assumed it had.
This matters most for assets attached to a contract. Where a machine was bought for a three-year job on a four-year facility, the ending is worth settling at inception rather than discovering later. It is a five-minute question at the quoting stage and an expensive one afterwards, and it is asked far less often than it deserves to be.
Test the maths
Both structures, in weekly numbers.
Enter the full amount for the hire purchase figure, then the amount less the residual for the lease. The difference between them is what the deferral is buying. Indicative only, and not a quote or offer of credit.
Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.
Sending to Prospa
Your $80,000 scenario
4 years at 11.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
Method
How this guide was written.
The figures come from the calculator on this page at an indicative 11% over 48 months, which is a mainstream New Zealand asset finance scenario rather than a favourable or unfavourable one. They are illustrative and are intended to show the shape of the trade rather than to predict what any business would be offered.
The tax and accounting descriptions are drawn from Inland Revenue’s published guidance and from the accounting standard itself, and they are stated with the accountant’s confirmation attached because the treatment depends on the specific arrangement and on the reporting framework the business uses. Nothing here is tax advice.
Context for the indicative rate used in the worked figures.
FAQ
Questions, answered
Which is cheaper, a hire purchase or a finance lease?
Per week, the lease. In total to end up owning the same asset, the hire purchase, because the residual on a lease accrues interest for the full term. On an $80,000 asset at an indicative 11% over 48 months the difference in total is a few thousand dollars, and the difference in weekly payment is around $143.
Why is the lease payment lower?
Because a residual set at inception is not amortised across the term, so less is being repaid. A 30% residual removes roughly 30% of the amount from the schedule. The lower payment is buying a deferral rather than a cheaper facility.
How do I compare them properly?
Total the lease payments and add the residual, then compare that against the total of the hire purchase payments. That is the like-for-like figure. Then look separately at the weekly position, because the totals are usually close and the weekly figures are not.
Which structure suits keeping an asset long term?
A hire purchase, clearly. It ends with the asset owned and nothing outstanding, so the payments stop while the asset keeps working. A lease on an asset a business intends to keep means settling a residual at the end, which is the same money arriving less conveniently.
Which suits replacing on a cycle?
A finance lease, or an operating lease if the business wants no residual exposure at all. Matching the term to the replacement cycle means the asset goes back or is traded on the day the replacement arrives, and the disposal question does not arise.
Does the tax treatment differ between them?
It can, materially. A hire purchase puts the business in the ordinary owner’s position for depreciation and GST. A finance lease depends on the arrangement, and New Zealand tax rules can treat some leases as sales. Both are subject to the accountant’s confirmation, and the difference can be large enough to change the decision.
What happens if the asset is worth less than the residual?
The disposal exit disappears, because selling the asset no longer clears the amount owing. The difference has to be found from elsewhere. That is the exposure a lease concentrates at the end, and it is why lenders cap how high a residual they will write.
Can a hire purchase have a residual too?
Yes, as a balloon. The vocabulary differs and the arithmetic is the same, so a hire purchase with a balloon behaves much like a finance lease on the payment side while keeping the ownership position of a hire purchase. It is a useful middle option and it is offered less often than it might be.
Is one easier to get approved than the other?
Rarely by much. The credit assessment is on the business and the asset in both cases, and most New Zealand asset financiers write both. Where a lender prefers one, it is usually because that is what it writes most often rather than because the risk differs.
Can the structure be changed after signing?
Not directly. Changing structure means settling the existing facility and writing a new one, which is refinancing rather than amendment and carries whatever settlement cost the original agreement specifies. That is why the question is worth answering properly before signing.
Which is better for the balance sheet?
For entities reporting under NZ IFRS 16, most leases are brought onto the balance sheet anyway, so the older idea that leasing keeps assets off it no longer holds for them. For businesses reporting under a different framework the position may differ, and the accountant is the right person to confirm which applies.
What if the business is not sure whether it will keep the asset?
That uncertainty itself points toward a lease, because it preserves the option to hand the asset back rather than committing to ownership. The cost of that optionality is the interest on the residual, which is a reasonable price for not having to decide today.
Indicative content only. Not personalised financial advice.
Financing a machine is a commitment that runs for years, and the repayments come out of the same operating cash flow as everything else. Modelling the weekly and monthly cost against the working-capital position before committing is what this site is built for. Borrowing at a level that stays comfortable through a quiet quarter, rather than only through a strong one, is widely regarded as the safer frame.
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What the figures show
Modelled estimates based on the inputs shown. Not a quote. Not an offer of credit. Not a guarantee of approval, rate or fees.
What the lender decides
Final rates, fees, and approval are set by the lender after a CCCFA-appropriate assessment of the applicant's circumstances and credit decision.
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Tax, GST, and accountant framing
Tax-treatment statements (GST claim timing, interest deductibility, depreciation rates) are general in nature and subject to the accountant's confirmation on the specific business position. For material amounts, professional advice from a registered financial adviser or chartered accountant is widely regarded as the safer frame.
