Chattel Mortgage vs Lease vs Hire Purchase

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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
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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 financeCommon useAsset valueAsset lifespanAsset ownership

Chattel mortgage

Vehicles Machinery



Full ownership from the start

Finance lease

Large machinery Medical Equipment



Ownership benefits with option of full actual ownership at the end of the term

Operating lease

IT equipment Telco equipment



No ownership

Commercial hire purchase

Tools Equipment Vehicles



Ownership at the end of the agreement

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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 business lease

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:

  1. 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.
  2. 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.
  3. 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.
How asset finance works

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.

Car Maintenance and Servicing

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.

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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

IndustryChattel mortgageFinance leaseOperating leaseHire 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


Fit-outs Company cars

Medical equipment

IT and payment systems

Office furniture


Fit-outs Company cars

Not often used

IT and payment systems

Store furniture



High-value tools

Low-value tools

Mid-value tools


Manufacturing equipment

Manufacturing equipment

Not often used

Not often used

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Chattel mortgage vs lease vs hire purchase FAQs

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.

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.

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.

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Written by

Shaun McGowan founder

Loans Expert

Shaun McGowan

Reviewed by

Sean Callery Editor


Sean Callery