Quick Answer
UK machinery finance is usually a hire purchase: you pay a deposit plus the full 20% VAT on signing (reclaimable if VAT-registered), then fixed monthly payments — a £25,000 machine at 10% deposit over 60 months at 7.9% APR costs about £452 a month with £4,633 in credit charges. Watch the quote type: a "flat rate" charges interest on the whole amount for the whole term, so a 6% flat rate really costs about 11.4% APR — nearly double.
What Machinery Finance Costs in the UK
There is no official table of UK machinery finance rates. What quotes actually look like is that the same deal gets described two different ways — as a flat rate or as an APR — and only one of them can be compared between lenders. The lender guide cited below reports flat rates of 3–8% a year as common for mainstream assets with creditworthy borrowers, and APR equivalents of 6–15% depending on the term, the asset and the lender.
| How the quote is expressed | Reported range | Comparable between lenders? |
|---|---|---|
| Flat rate — mainstream assets, creditworthy borrower | 3% – 8% a year | No — interest is charged on the original amount for the whole term |
| The APR those same deals work out at | 6% – 15% | Yes — this is the figure to compare |
Treat both as one lender’s market observation rather than a published statistic. Your own rate lands on credit history, trading record, deposit and the asset’s age, so the rate to enter above is the one on your own quote — and if that quote is a flat rate, convert it first. Representative terms run 2–5 years, with longer terms on high-value kit, and document and option-to-purchase fees are charged on top of any rate.
How the Repayment Is Calculated
Hire purchase is a fixed-rate annuity: interest accrues on the falling balance, every payment is the same, and an optional balloon defers a lump sum to the end. UK APR is an effective annual rate, so the calculator first converts it to a true monthly rate.
Payment = (A − balloon ÷ (1+i)ⁿ) × i ÷ (1 − (1+i)⁻ⁿ). Cost of credit = all payments + balloon − A.
At 7.9% APR, i = 0.636% per month.
The Flat Rate Trap: Why 6% Really Means 11.4%
Business hire-purchase quotes are often given as a flat rate: interest charged on the full original amount for the whole term, even though your balance falls with every payment. In the last month you are still paying interest on money you repaid years ago. The result — a flat rate looks about half of the true APR:
| Quoted flat rate | True APR (36 months) | True APR (60 months) | APR ÷ flat |
|---|---|---|---|
| 3% flat | 5.8% | 5.8% | ≈ 1.9× |
| 4% flat | 7.8% | 7.7% | ≈ 1.9× |
| 5% flat | 9.7% | 9.5% | ≈ 1.9× |
| 6% flat | 11.7% | 11.4% | ≈ 1.9× |
| 8% flat | 15.6% | 15.1% | ≈ 1.9× |
How to Use the Machinery Finance Calculator
-
Pick HP repayments or Flat rate → APR
Use HP repayments to price a hire purchase deal, or Flat rate → APR to translate a flat-rate quote into a comparable APR.
-
Enter the machine’s price ex VAT
Type the equipment cost without VAT. The calculator works the 20% VAT out separately, because on hire purchase it is due on signing — not spread across the payments.
-
Set the deposit, term and APR
Enter the deposit as a percentage or switch the picker to £ for a fixed amount. Then set the term — in months or years, whichever you were quoted — and the APR from your quote. If you were quoted a flat rate instead, convert it in the other mode first — the two numbers are not comparable.
-
Add a balloon if your deal has one
A balloon lowers the monthly payment but runs interest for the whole term. The cost-of-credit read-out shows exactly what that convenience costs.
-
Read the payment and the working
The result card shows the monthly payment, amount financed, total credit charges, total payable and the VAT due on signing — with every calculation line underneath.
Machinery Finance Examples
Every row is reproducible in the calculator above (hire purchase, APR as effective annual rate):
| Deal | Financed | Monthly payment | Cost of credit | VAT on signing |
|---|---|---|---|---|
| £25,000 machine, 10% deposit, 60 mo @ 7.9% | £22,500 | £452.22 | £4,633 | £5,000 |
| Same deal with a £5,000 balloon | £22,500 | £383.51 | £5,510 | £5,000 |
| £60,000 machine, 10% deposit, 84 mo @ 6% | £54,000 | £784.75 | £11,919 | £12,000 |
| £12,000 machine, no deposit, 36 mo @ 9.5% | £12,000 | £382.21 | £1,760 | £2,400 |
The balloon row is the trap in numbers: the monthly drops by £68.71, but the total cost of credit rises from £4,633 to £5,510 — the deferred £5,000 keeps accruing interest for all five years. Settling early stops that interest, and the rebate is its own calculation — the early-settlement calculator for UK car finance works a settlement figure out the same way.
VAT on Machinery Hire Purchase
Hire purchase is treated as a supply of goods, so the full VAT is due on signing — 20% of the machine’s price, paid with the deposit. A VAT-registered business reclaims it on the next VAT return, turning it into a short-term cash-flow cost rather than a real one. On a finance lease the funder owns the asset and VAT is charged on each rental instead — smaller upfront, but you never own the machine and the VAT runs for the whole term.
