Equipment & car finance · Guides
Chattel mortgage vs finance lease vs hire purchase
If you're buying a ute, van, truck or piece of equipment through your business, you'll usually be offered one of three structures. They can have similar repayments, but they differ on who owns the asset, how GST is handled and what happens at the end.
The short answer: most ABN holders who want to own the asset choose a chattel mortgage. A finance lease can suit businesses that prefer to upgrade regularly and treat the payments as a running cost. Hire purchase is less common today but still offered by some lenders.
Chattel mortgage
With a chattel mortgage, your business buys the vehicle or equipment and owns it from day one. The lender lends you the money and takes a mortgage over the asset as security until the loan is repaid.
- Ownership: yours from the start; the lender's security is removed once the loan is paid off.
- GST: because your business buys the asset outright, GST-registered businesses may be able to claim the GST on the purchase price.
- Tax: as the owner, your business may be able to claim the interest and depreciation.
- Balloon: you can choose a lump sum at the end to lower your regular repayments, or no balloon at all.
A chattel mortgage tends to suit businesses that want to own the asset and keep it for several years.
Finance lease
With a finance lease, the lender buys the asset and leases it to your business for a fixed term. You make monthly lease payments, and at the end you can pay out the agreed residual value, refinance it, or hand the asset back and upgrade.
- Ownership: the lender owns the asset during the lease.
- GST: GST is included in each lease payment rather than paid on the purchase price.
- Tax: the lease payments are a regular business expense.
- Residual: a residual value is set at the start and is payable if you keep the asset.
A finance lease can suit businesses that upgrade regularly, or that prefer to treat vehicles and equipment as a monthly running cost.
Hire purchase
With hire purchase, the lender buys the asset and hires it to your business. Ownership passes to you once the final payment, including any balloon, is made.
- Ownership: the lender's until the last payment, then yours.
- GST: the ATO treats hire purchase similarly to buying the asset, so the GST is handled up front rather than on each payment (ATO).
- Tax: once you own it, the treatment is similar to a chattel mortgage.
- Balloon: an optional final lump sum can lower the regular repayments.
Hire purchase works much like a chattel mortgage in practice. Fewer lenders offer it today, so it usually comes down to which lender gives you the better overall deal.
At a glance
| Chattel mortgage | Finance lease | Hire purchase | |
|---|---|---|---|
| Who owns it | Your business, from day one | The lender | The lender, until the final payment |
| How GST works | On the purchase price | Included in each lease payment | On the purchase price |
| End of term | You own it outright | Pay the residual, refinance or hand it back | You own it outright |
| Balloon or residual | Optional balloon | Residual set at the start | Optional balloon |
| Often suits | Owning and keeping the asset | Regular upgrades | Similar to chattel mortgage |
How GST and tax apply depends on your business, so it's worth confirming with a tax professional before you choose.
How to choose
Start with three questions: do you want to own the asset, how long will you keep it, and how do you want to handle GST? We'll explain how each option works for your situation. We'll then find a lender that offers it on terms that work for your cash flow.
If your business has an established ABN and GST registration, low-doc options may also be available. These can mean less paperwork than a full financial assessment.
Talk to My Finance Hub
We compare 40+ lenders for cars, utes, trucks and equipment, and handle the paperwork from quote to settlement. Get a quote or call us on (03) 9088 3384.
General information only. It doesn't take into account your objectives, financial situation or needs, and it is not tax advice; consider speaking with a tax professional about your situation. Credit criteria, fees and charges apply. My Finance Hub is a Credit Representative (553769) of Purple Circle Financial Services (Australian Credit Licence 486112).