According to Alliance Equipment Finance , Commercial Hire Purchase (CHP) may be the right option for financing a car or investing in a long lasting capital. Ownership of the item is the goal of anyone undertaking a CHP contract. Users have the option of electing to include a final lump sum balloon payment. At the end of a CHP, they can pay the balloon (similar to a residual) to cover the remaining cost of the item.
Under a CHP, the item needs to be included on the balance sheet, which means monthly payments are not tax deductible. However, the depreciation of the equipment as well as the interest paid over the contract may be tax deductible. At the end of a CHP term, the client does not get the choice to hand back the equipment. If a balloon is applicable, the balloon must be paid. However, the client may choose to pay the contract out before the CHP term expires.