In this article, we will explain the difference between a hire purchase loan and a term loan is. Also, we will consider the types of business loans available in the market for everyone are.
What are the differences between a hire purchase loan and a term loan?
Hire purchase is the kind of loan policy in which the seller and buyer rent the assets. It is the kind of loan where you are given a very high amount of money. This means that this kind of loan policy is used to purchase very expensive things. There is a repayment policy that is made for 12 months, and you have to pay in the EMI method. According to the money that is spent, you need to calculate the monthly EMI. If it a big amount then you should have enough money so that you can pay the EMI for every month. If you fail to do so, then they will take away the assets bought by you as it is under their name still. They will only make those assets in your name once you have paid all the EMI’s successfully and has been repaid. A term loan is an assistance provided by banks and financial institutions for money lending. This means that you can take the money from them for a certain amount of time. It is the kind of common loan policy in the world ad many people have been known to take this policy. The person has to pay the amount of principal in monthly EMI. This can be used to purchase an asset and also for expanding their business. Given below is the list of differences between hire purchase and also term loan.
In hire purchase, the asset is owned by the lending company till the final payment is made. In a term loan, the asset is owned by the borrower, and it can be sold to repay the loan. But in hire purchase, the asset cannot be sold to repay the amount as it is the company’s property.
- Cost of asset
In a term loan, the cost of the asset is calculated at its price and if there are any installation charges involved. While in hire purchase, the cost of the asset is its normal price and the interest you have to pay.
- Repossession of hired asset
In the term loan, the lender can take away the asset if the borrower is unable to pay the EMI. The hire purchase is different as they will come and take away the asset without informing and take charges.
- Mortgage of asset
Neither the term loan nor the hire purchase takes security in any form from the borrower. The security in both is the assets that have been purchased by the borrower are taken away rightfully.
- Financial statement
In hire purchase, the value of the asset is not included in the financial statement until the amount is repaid. Because the asset is not owned by the borrower until the full payment of the asset. In term loan, the asset will appear on the asset side of the financial statement of that year.
- Effect of tax
In both the kinds that are assets taken by hire purchase or by term loan, they can deduct the depreciation cost. In hire purchase, the amount of loan is more, and so the taxes will also be very high. While in the term loan, the amount of loan is small, and so there are fewer taxes when compared.
- Cash flow
In hire purchase, nothing is purchased, so the cash flow is limited to the EMI that is being paid. While in term loan, the cash flow will go from the down payment, loan received to purchase and then installments.
What are the different types of business loans in the market?
Given below is the list of business loans Singapore that you can take to secure your business.
- Unsecured business term loan
It is the kind of term loan where you won’t have to keep an asset as collateral, and it is very risky. The amount can go from S$ 50,000 to S$ 500,000, and the installment can go from 3 to 5 years, and the interest is high.
- SME microloan
It is the government-made and aided loan where they help the SME with finance. Thie loan amount can go up to S$100,000 and has to be repaid within 1 – 2 years, and interest is not that much.
- SME working capital loan
It was introduced by the Singapore government in the year 2016, and this is an unsecured business loan. You can get a loan of up to S$300,000, and it does not have high interest rates or collateral.
- Trade financing
It is the kind of finance that you get quickly, and you can use it to purchase goods and services quickly from the market. Discover also about finding the best personal loans online.