Chattel Mortgage vs Lease vs Hire Purchase

When you finance equipment or a vehicle for business use in Australia, the amount you borrow is only half the decision. The structure you borrow under determines who owns the asset, what sits on your balance sheet, how GST is handled, and what you are left holding at the end of the term. Hire purchase sits between a chattel mortgage and a lease: you get title at the end, on the final payment, rather than on day one.

The cash-flow difference between them usually comes down to one thing: whether there is a residual or balloon at the end. The tax difference is a separate question, it depends on your GST registration and how the asset is used, and it belongs with your accountant rather than with a broker. We have set out the structural differences below and left the tax treatment where it belongs.

The options

What each one actually is

Chattel mortgage

You own the asset from day one. The financier registers a security interest on the PPSR and releases it when the debt is paid out.

Suits

Businesses that want to own the asset outright and keep it after the term, particularly where the GST treatment of owning suits how they are registered.

Watch out for

The asset is on your balance sheet and the security interest stays registered until payout. Confirm it is actually released when you finish.
Hire purchase

The financier owns the asset during the term. You hire it under an agreement that transfers title to you automatically once the final payment, including any balloon, is made.

Suits

Businesses that want ownership at the end but where the accounting or GST treatment of hiring suits them better during the term. Historically common where cash-basis GST accounting changes the timing, which is your accountant's territory.

Watch out for

You do not hold title until the last payment clears, which matters if you want to sell or refinance the asset mid-term. Not every financier writes hire purchase, so wanting one narrows the panel.
Finance lease

The financier owns the asset and leases it to you for the term. A residual is owing at the end, which you settle to take ownership.

Suits

Businesses choosing structure for cash flow and accounting treatment rather than for outright ownership from the start.

Watch out for

The residual has to be dealt with when it falls due, and the asset needs to still be worth roughly that much.
Rental or operating lease

You pay for use of the asset and hand it back at the end. No ownership, and nothing to settle.

Suits

Equipment that dates quickly, or that you only need for a defined period, where staying current matters more than owning.

Watch out for

You build no equity. Across several consecutive rentals the total outlay can exceed simply buying the thing.

Run your numbers

What a residual does to your repayment

Enter the figures you have actually been quoted. This shows how leaving a residual or balloon at the end changes both the regular repayment and the total you pay across the term.

Asset price

Deposit

Rate you were quoted

Term:

Residual or balloon:

That is still owing at the end of the term.

Financed amount:

With a residual

per month

Owing at the end
Total cost of finance

No residual

per month

Owing at the end: $0
Total cost of finance

The residual lowers your repayment by a month. Across the term that costs you more in total, and leaves to find, refinance or cover by selling the asset.

Set the residual against what the asset will realistically be worth then. If it is worth less than the residual, you owe the difference.

With no residual you own the asset outright at the end of the term and there is nothing left to settle. The repayment is higher, but it is the cheapest of the two in total cost.

This models the cash-flow difference, which is arithmetic. It does not model tax: the GST and deduction treatment of a chattel mortgage, a lease and a rental differ, and which suits you depends on your registration and how the asset is used. That one is for your accountant.

Estimates only, for general information. Not a quote and not an offer of finance. Actual repayments, fees and approval are set by the lender.

At a glance

Side by side

	Chattel mortgage	Hire purchase	Finance lease	Rental
Who owns it during the term	You	The financier	The financier	The financier
On your balance sheet	Yes	Depends on treatment	Depends on treatment	Generally no
Security registered on the PPSR	Yes	Yes	Yes	Varies
Residual or balloon at the end	Optional	Optional, and common	Usually	None
You keep the asset at the end	Yes	Yes, on the final payment	On settling the residual	No
GST and deduction treatment	Ask your accountant	Ask your accountant	Ask your accountant	Ask your accountant

How to actually choose

The honest answer

If you intend to keep the equipment and it holds its value, a chattel mortgage is the most common answer in Australia and usually the simplest to understand. If the equipment will be obsolete or worn out by the end of the term, rental deserves a serious look, because owning a dead asset is not a win.

Chattel mortgage and hire purchase usually land in a similar place for a GST-registered business. The deciding differences are GST timing and when you take title, and the timing question is exactly the accountant's call, so ask it before you sign. The broker-relevant point is narrower: not every financier writes hire purchase, so wanting one shrinks the field of lenders worth approaching, which is worth knowing before you set your heart on the structure.

The residual is the lever that matters most for cash flow. A larger residual lowers the repayment now and increases both the total interest and the amount you must find at the end. Set it against a realistic view of what the asset will be worth then, not an optimistic one.

The tax comparison is genuinely the accountant's call, not ours, and it can flip the answer. Get that advice before you sign rather than after, because the structure is fixed once the documents are executed.

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FAQs

Common questions

Is a chattel mortgage better than a lease?

Neither is better in general. A chattel mortgage gives you ownership from the start, which suits assets you intend to keep. A lease can suit where the accounting or cash flow treatment works better for you. The deciding factor is usually tax treatment combined with whether you want the asset at the end, and the tax half of that is a question for your accountant.

What happens if the asset is worth less than the residual?

You still owe the residual. If you sell the asset for less than that amount, you have to make up the difference. This is the main risk of setting a large residual to get a low repayment, and it is why the residual should be set against a realistic end-of-term value rather than a hopeful one.

Can I pay out equipment finance early?

Usually, though there may be a break cost or early termination fee depending on the structure and whether the rate is fixed. Ask for a payout figure before assuming what it will cost, because the balance shown on a statement is not the same number.

Does the structure affect what I can borrow?

Less than the asset itself does. Lenders care about what the equipment is, its age, and how readily it could be resold, because that is their security. Some financiers will not fund particular asset types or ages at all, which is why comparing across a panel matters more for specialised equipment than for a standard vehicle.

What is the difference between a chattel mortgage and hire purchase?

Title. Under a chattel mortgage you own the asset from day one and the financier holds a registered security interest. Under hire purchase the financier owns it and title transfers to you automatically on the final payment. Otherwise they are close cousins, and the deciding difference is usually GST timing under your accounting method, which is a question for your accountant rather than for us.

Can I end a hire purchase agreement early?

Generally yes, by paying out the agreement, and the practical step is asking the financier for a payout figure, which is only valid for a short window. Early termination costs vary by financier and agreement, so get the figure in writing before you commit to selling or refinancing the asset, and remember that title only passes to you once the agreement is paid out in full.

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The right answer depends on your numbers.

A comparison page can show you the shape of the decision. Which option is actually cheaper for your business depends on what the lenders would offer you, and that is the part we do.

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Chattel mortgage vs finance lease vs hire purchase

What each one actually is