The core difference between a chattel mortgage, a finance lease and hire purchase is ownership and, flowing from it, tax treatment. With a chattel mortgage your business generally owns the asset from the start and may claim interest and depreciation. Hire purchase transfers ownership to you at the final payment. A finance lease keeps the asset with the financier, and the whole rental is usually treated as an operating expense. Which is cheapest for you depends on your GST accounting, your cash flow and how long you keep the asset.
This is a comparison every broker and bank owns a version of, because the choice genuinely matters. Below is the plain-English version, with a decision guide and a calculator so you can price a repayment before you commit. 121 Brokers is a broker, not a lender: we compare structures across a panel, and the tax points here are general information, not tax advice.
The three structures at a glance
Start with the shape of each one, then read the detail underneath.
Chattel mortgage vs finance lease vs hire purchase
Comparison of chattel mortgage, finance lease and hire purchase
| Feature | Chattel mortgage | Finance lease | Hire purchase |
|---|
| Who owns the asset | You, from day one | The financier (you rent it) | The financier until the final payment |
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| On your balance sheet | Your asset, with the loan as a liability | Treated as a lease arrangement | Asset passes to you on completion |
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| GST on the price | GST-registered businesses can generally claim the GST in the purchase price as an input tax credit | GST is generally charged on the rentals, not the price | Broadly similar to a chattel mortgage: ownership is the intent |
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| What is usually deductible | Interest and depreciation, for business use | The rental payments, as an operating expense | Interest and depreciation, for business use |
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| End of term | You own it outright, after paying any balloon | Return it, extend, or pay a residual to buy it | You own it after the final instalment |
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| Typically suits | Most SMEs buying an asset to keep | Businesses on a regular upgrade cycle | Owners who want ownership at term end |
|---|
Tax and accounting treatment differs by structure and by situation. The rows above are general information; confirm your position with your accountant.
What is a chattel mortgage
A chattel mortgage is the most common way Australian businesses finance equipment and vehicles. "Chattel" is the asset; the "mortgage" is the security interest the financier registers over it until the loan is repaid. You own the asset from settlement and use it from day one, and once the loan is cleared the security interest is removed.
Ownership and the security interest
Because you own the asset, it sits on your balance sheet and the financier holds security over it rather than owning it. That security is what keeps chattel mortgage pricing below unsecured lending: the financier has an asset to recover against.
GST and depreciation
For a GST-registered business, the GST in the purchase price can generally be claimed as an input tax credit on your BAS, with the timing depending on your accounting basis. Because you own the asset, depreciation is generally yours to claim for the business-use portion, and the interest component of repayments is generally deductible. A balloon (a lump sum parked at the end of the term) lowers your regular repayments, with the balloon paid out or refinanced at the end. The exact tax outcome depends on your circumstances, so confirm it with your accountant.
What is a finance lease
Under a finance lease the financier buys the asset and leases it to you for an agreed term and rental. You get full use of the asset, but the financier retains ownership. The whole rental is usually treated as an operating expense rather than split into interest and depreciation, which some businesses prefer for its simplicity and its effect on the profit and loss statement.
End-of-term options
At the end of a finance lease you typically return the asset, extend the lease, or pay a residual value to take ownership. That residual is set at the start and is worth understanding before you sign, because it shapes both your rentals and what the asset costs you if you decide to keep it. Leasing tends to suit businesses that upgrade on a cycle and would rather hand equipment back than own an ageing asset.
What is hire purchase
Hire purchase (sometimes called a commercial hire purchase) sits between the two. The financier owns the asset and hires it to you, and ownership transfers to you automatically once you have made the final payment. You have the use and the risks of the asset during the term, much like a chattel mortgage, but legal ownership arrives at the end rather than the start.
How it differs from a chattel mortgage
The practical difference is the timing of ownership and the way the arrangement is documented, which can flow through to GST and tax treatment. In substance, both are ownership-oriented structures: you end up owning the asset. Chattel mortgage has become the more common choice for many businesses, but hire purchase still suits some situations, which is exactly the kind of thing worth checking with your accountant and your broker together.
Which one suits your business
There is no universally cheapest structure, and any page that tells you otherwise is guessing at your circumstances. The right answer turns on a few practical questions:
- Do you want to own the asset? If yes and you are buying to keep, a chattel mortgage or hire purchase points at ownership. If you would rather return and upgrade, a finance lease may suit.
- What is your GST accounting basis? The timing of GST claims differs between structures, and on a cash versus accruals basis this can change your cash flow in the early months.
- How long will you keep it? An asset you will run into the ground is a different decision from one you will trade in after three years.
- How do you want repayments to look? A balloon or residual lowers the regular repayment but leaves a lump sum at the end.
Price a repayment for your own asset and term, with or without a balloon or residual, using our calculator:
A note on tax and the instant asset write-off
Business owners often ask whether a financed asset can qualify for the instant asset write-off. The point worth knowing as you choose a structure is a structural one: what generally matters is whether you own the asset and have it installed ready for use, not how you paid for it. Assets bought under a chattel mortgage or hire purchase are treated as owned, whereas a finance lease keeps ownership with the financier, which is a different position.
Beyond that structural point, we do not publish write-off thresholds, deadlines or eligibility rules here, because they are set by government, they change, and a number that is right today can be wrong by the time you read it. Check the current position with your accountant and at ato.gov.au before you make a purchase decision. This is general information only, not tax advice.
To go deeper on the products themselves, see our equipment finance and vehicle finance pages, or read why financing equipment can protect your working capital. When you want structures priced against your actual asset, compare your options with a broker.
General information only: not financial, legal or tax advice, and it does not take account of your objectives, financial situation or needs. 121 Brokers arranges business-purpose finance only and is a broker, not a lender. Any rates, fees, advance rates or timings mentioned are broad market guides, not quotes or offers. Approval, amounts, rates, fees and timing are determined by the lender or financier and are subject to its assessment criteria. Confirm any tax position with your accountant and at ato.gov.au.
