Which obtains greater interest hire purchase or a bank loan?
This sounds like a homework question, but the answer would be the ‘hire purchase’ would wind up costing more. But you need to look at the specifics. What are the terms of payment on the hire purchase plan? Calculate out the total payments and see how much more than the purchase cost it will cost you. Usually the rate (in the US anyway) is between 18% and 25% for this method of payment. Make sure there is no balloon payment at the back end, too. A bank loan should get you a better rate and you own the equipment outright at the end of the payment schedule. Obviously, with these assumptions, if you can do the bank loan, go there. Your purpose is to keep your interest expense as low as possible.
