Chattel Mortgage vs Lease vs Hire Purchase
Compare quotes to see which finance option will be best for your business.
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Choosing between a chattel mortgage vs lease vs hire purchase
Choosing between a chattel mortgage, a lease, or hire purchase comes down to whether you want ownership, or the option of ownership, of the asset you're financing. With a chattel mortgage, you will own the asset from the start of the finance term. With a lease, you don't own the asset during the term, but you may have the option of ownership when it ends.
Of course, whether a chattel mortgage, lease or hire purchase will be best will depend on the type of business you operate, your financial circumstances (such as whether you need access to cash flow), your tax position (for chattel mortgage GST benefits) and the type of the asset you wish to purchase.
You’ll also want to consider:
- How much your business will pay in interest and fees with each option
- Whether you need to upgrade the asset during the term of your finance agreement
- The amount of GST or tax your business can claim
- What you would like to happen to the equipment at the end of the finance term
How to compare chattel mortgage vs lease vs hire purchase
A chattel mortgage, finance or operating lease, and commercial hire purchase (CHP) are all forms of equipment finance available to businesses in Australia. Each offers different levels of asset ownership and business tax benefits. For example, there are chattel mortgage GST benefits, and business tax deductions on lease payments.
If you want to compare a chattel mortgage with a lease and commercial hire purchase, the first consideration is what kind of asset or assets you want to acquire for your business. You can finance vehicles, equipment, or machinery for a business through these types of commercial finance, but understanding how they work will help you decide which will benefit you and your business the most.
Chattel mortgage vs lease vs commercial hire purchase comparison
| Type of finance | Common use | Asset value | Asset lifespan | Asset ownership |
|---|---|---|---|---|
Chattel mortgage | Vehicles Machinery | High | Long-term | Full ownership from the start |
Finance lease | Large machinery Medical Equipment | High | Long-term | Ownership benefits with option of full actual ownership at the end of the term |
Operating lease | IT equipment Telco equipment | Low | Short-term | No ownership |
Commercial hire purchase | Tools Equipment Vehicles | Medium | Medium-term | Ownership at the end of the agreement |
Chattel mortgage advantages
A chattel mortgage gives a business full ownership of the assets funded by a lender. Generally, chattel mortgage interest rates will be competitive as the assets you purchase will act as security on the loan.
A business can also claim the initial GST amount of the asset’s purchase price when using a chattel mortgage. You can use our chattel mortgage calculator to estimate how much your regular repayments and total costs will be.
A balloon payment on a chattel mortgage can help reduce the agreed repayment amount, freeing up business cash flow.
Chattel mortgage GST benefits
Once a chattel mortgage is established through a lender, a business can claim the GST on the initial purchase price of the vehicle as an input tax credit on its next Business Activity Statement (BAS). To do so, your business will need to be registered for GST on a cash basis — i.e. your business records income and expenses when they occur.
The maximum amount of GST you can claim on an asset is 1/11th of the cost limit set each year by Australian Tax Office.
Types of Lease available to Australian businesses
There are three main types of business lease in Australia: a finance lease, an operating lease and a novated lease. To decide which type of lease may best suit your business needs, it’s important to understand the distinctions between the two and what they are commonly used for:
- Finance lease — A mid-to-long-term lease used for high-value purchases — such as medical equipment, and your business will take on both the risks and benefits of owning the asset.
- Operating lease — A short-to-mid-term lease used for assets which may become quickly obsolete — such as computers and IT equipment — and the lender will take on both the risks and benefits of ownership.
- Novated lease: – A tax-efficient way for business to allow employees to finance a vehicle and its running costs. The vehicle can be used by the employee 100% for personal use.
Finance lease advantages
The main advantage of a finance lease is low interest rates in comparison to other types of equipment finance. Your business will have both the use of business equipment and the benefits of ownership.
However, the lender will have actual ownership of the asset, which means there is very low risk to the lender. You generally have the option to take ownership of the asset by making a final 'balloon payment' to the lender. You may also be able to claim tax on your finance lease payments.
Operating lease advantages
The main benefit of an operating lease is that your business can commonly upgrade the assets purchased within the lease period.
This is highly beneficial for businesses purchasing IT equipment, as these types of assets often become obsolete within a few years. Your business can also claim tax on your rental payments.
The cost of any maintenance required fro the asset during the operating lease term will be included in your lease payments.
Commercial hire purchase (CHP) advantages
The main benefit of a commercial hire purchase is that your business will own the asset at the end of your agreement. Your business will benefit from not needing to purchase the asset outright, which frees up cash flow on medium-value assets such as office furniture or power tools.
For this reason, hospitality businesses often use hire purchase agreements to finance commercial kitchen equipment.
Common businesses choosing chattel mortgage vs lease vs hire purchase
| Industry | Chattel mortgage | Finance lease | Operating lease | Hire purchase |
|---|---|---|---|---|
Hospitality — Restaurants and cafes | Fit-outs Company cars | Brewery equipment | IT and payment systems | Commercial kitchen equipment |
Construction and mining | High-value equipment | High-value equipment | Low-value equipment | Mid-value equipment |
Medical | Fit-outs Company cars | Medical equipment | IT and payment systems | Office furniture |
Retail | Fit-outs Company cars | Not often used | IT and payment systems | Store furniture |
Tradespeople | Vehicles | High-value tools | Low-value tools | Mid-value tools |
Manufacturing | Manufacturing equipment | Manufacturing equipment | Not often used | Not often used |
Other types of business finance
Need fast access to finance or a one-time credit facility?
- Short-term business loan
- Unsecured business loan
- Invoice finance
- Business line of credit
- Business overdraft
Have a unique need for business finance?
- Fit-out finance
- Inventory finance
- Business caveat loans
- Business tax debt loans
- Purchase an existing business
- Business partner buyout
- Self-employed business loans
- Bad credit business loans
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Chattel mortgage vs lease vs hire purchase FAQs
Get help from a real-life Money Matchmaker® from start to finish.
What is the difference between a chattel mortgage, lease, and hire purchase?
The differences between a chattel mortgage, lease, and a hire purchase agreement are levels of asset ownership for the business and varying degrees of tax benefits. While all of these types of business finance are used to purchase equipment, vehicles, and machinery, understanding their differences could save you money and provide access to vital business cash flow.
Where can I get a chattel mortgage, lease or hire purchase?
A chattel mortgage, lease, and hire purchase are all available from a variety of lenders in Australia — including banks, non-bank lenders, and specialist asset finance lenders. You can read about where to apply and how to qualify in our equipment finance guide.
How can I compare interest rates on a chattel mortgage, lease and hire purchase?
Interest rates on a chattel mortgage, lease, and hire purchase will vary depending on the type of finance you choose and the specific asset or assets you wish to purchase. As well as the interest rates, it's important to pay attention to the fees charged, the finance term and your overall costs.
Written by
Loans Expert
Shaun McGowan
Reviewed by
Editor
Sean Callery
