Looking to finance the purchase of business assets? Use this handy asset finance calculator to get an understanding of how much your loan might cost.
Page written by Ian Hawkins. Last reviewed on July 10, 2024. Next review due April 1, 2025.
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Asset finance refers to a type of business borrowing where the loan is secured against a tangible asset like property, vehicles, or equipment.
When you need to acquire such assets but lack the cash for an outright purchase, or you prefer to allocate your cash elsewhere, asset finance lets you distribute the cost over time. You’ll make regular, smaller payments over a fixed period, with fees and interest added to the asset’s price. Throughout this period, you have full access to the asset. Depending on the agreement, the responsibility for the asset’s repair and maintenance might fall on you or remain with the finance provider. At the end of the term, the asset’s ownership might revert to the lender or be transferred to you.
Alternatively, if you already own a valuable asset and need to unlock its cash value, you can use it as collateral for a loan. This type of borrowing is known as asset refinance, where the lender provides a loan based on the asset’s value.
Read about asset finance, how does it work, its types and more.
An asset finance loan is a type of loan used to purchase or lease business equipment, vehicles, or other assets. The amount of the loan is typically based on the value of the asset being financed, and the loan is secured by the asset itself.
To calculate an asset finance loan, the lender will typically consider several factors, including:
The value of the asset: The lender will assess the value of the asset being financed and may require an independent valuation to ensure that the loan amount is appropriate.
The loan term: The loan term is the length of time over which the loan will be repaid. The longer the loan term, the lower the monthly repayments, but the more interest will be paid over the life of the loan.
The interest rate: The interest rate on an asset finance loan will depend on several factors, including the lender’s assessment of the borrower’s creditworthiness, the value of the asset, and the loan term.
Any fees or charges: The lender may charge fees for arranging the loan or for early repayment.
Once these factors have been considered, the lender will calculate the total cost of the loan, including interest and any fees or charges, and divide this by the loan term to determine the monthly repayments.
It’s important to note that asset finance loans may be structured in several different ways, including lease agreements, hire purchase agreements, and asset-backed loans. The specific terms and conditions of the loan will depend on the type of financing chosen and the lender’s policies.
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