Chattel mortgage vs lease vs hire purchase
By Bhavi Chadha · Updated 24 October 2026
The main ways to finance business vehicles and equipment, compared: who owns the asset, how GST and tax work, and which suits your business.
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- Ownership, GST and tax compared
- Vehicles and equipment
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In a nutshell
A chattel mortgage means your business owns the asset from the start, with the lender holding a mortgage over it, and most GST-registered businesses can generally claim the GST upfront. With a finance lease, the lender owns the asset and you pay rentals, with a residual to pay if you want to keep it. Hire purchase is similar to a lease, but ownership passes to you after the final payment. A chattel mortgage suits most businesses that want to own the asset, but the right choice depends on your tax position, so check with your accountant.
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- Most common
- Chattel mortgage
- You own it from the start
- Chattel mortgage only
- GST upfront
- Chattel mortgage and hire purchase, generally
- Rentals deductible
- Finance and operating leases, generally
- End of term
- Balloon, residual or nothing to pay
- Best advice
- Your accountant, on tax
How each structure works
A chattel mortgage is a loan. The lender pays for the vehicle or equipment, your business owns it from day one, and the lender takes a mortgage over it until you've repaid the loan. You can add a balloon at the end to lower your regular repayments.
A finance lease is a rental agreement. The lender buys and owns the asset, and your business pays monthly rentals for an agreed term. At the end, you can pay the residual to take ownership, refinance it, or trade up to a new asset. ATO guidelines set minimum residual values for leases, based on the term.
Hire purchase, or commercial hire purchase, sits between the two. The lender owns the asset while you make the payments, and ownership passes to you automatically after the final one. For GST and tax, it's generally treated much like a chattel mortgage.
An operating lease or rental is for using an asset rather than owning it. You pay a rental, sometimes including maintenance, and return or upgrade the asset at the end. It suits assets that date quickly, such as IT equipment, or fleets you replace regularly.
GST and tax
The biggest practical differences are how GST and tax are handled.
- Chattel mortgage and hire purchase: if you're registered for GST, you can generally claim the GST on the purchase price in your next BAS. You can generally claim depreciation on the asset and the interest on the finance, to the extent you use it for business.
- Finance lease and operating lease: GST is included in each rental and claimed as you pay. The rentals themselves are generally deductible, to the extent you use the asset for business.
Car limits, instant asset write-offs and depreciation rules change over time and depend on your business, so check the tax treatment with your accountant before you choose.
Balloons and residuals
A balloon on a chattel mortgage, or a residual on a lease, is a lump sum left to pay at the end of the term. It lowers your regular repayments, which helps cash flow while the asset is earning. You'll need to pay it out, refinance it or sell the asset when the term ends, so plan for it from the start. Our repayment calculator shows how a balloon changes your repayments.
Which one should I choose?
- You want to own the asset and claim the GST upfront: a chattel mortgage, the most common choice.
- You want ownership at the end without a residual to pay: hire purchase.
- You'd rather claim lease rentals, or keep the asset off your balance sheet: a finance lease or operating lease.
- The asset dates quickly or you upgrade often: an operating lease or rental.
The lender and structure also affect the rate, the term, any balloon and how much paperwork you need. See our guides to equipment finance, vehicle finance and low doc equipment finance.
The four structures side by side
Who owns the asset
- Chattel mortgage
- You, from the start
- Finance lease
- The lender, until you pay the residual
- Hire purchase
- The lender, until the final payment
- Operating lease or rental
- The lender, always
GST
- Chattel mortgage
- Generally claimed upfront in your next BAS, if GST-registered
- Finance lease
- Charged on each rental
- Hire purchase
- Generally claimed upfront, like a chattel mortgage
- Operating lease or rental
- Charged on each rental
What you can generally claim
- Chattel mortgage
- Depreciation and interest, for business use
- Finance lease
- Lease rentals, for business use
- Hire purchase
- Depreciation and interest, for business use
- Operating lease or rental
- Rental payments, for business use
End of term
- Chattel mortgage
- Pay any balloon and you keep owning it
- Finance lease
- Pay the residual to keep it, or refinance or upgrade
- Hire purchase
- Ownership passes after the last payment
- Operating lease or rental
- Return, upgrade or extend
On the balance sheet
- Chattel mortgage
- Asset and loan
- Finance lease
- Usually asset and lease liability
- Hire purchase
- Asset and liability
- Operating lease or rental
- Often off balance sheet
Usually suits
- Chattel mortgage
- Most businesses that want to own the asset
- Finance lease
- Businesses that prefer to lease and claim the rentals
- Hire purchase
- Businesses that want ownership without a residual
- Operating lease or rental
- Assets you upgrade often, such as IT or fleets
| Chattel mortgage | Finance lease | Hire purchase | Operating lease or rental | |
|---|---|---|---|---|
| Who owns the asset | You, from the start | The lender, until you pay the residual | The lender, until the final payment | The lender, always |
| GST | Generally claimed upfront in your next BAS, if GST-registered | Charged on each rental | Generally claimed upfront, like a chattel mortgage | Charged on each rental |
| What you can generally claim | Depreciation and interest, for business use | Lease rentals, for business use | Depreciation and interest, for business use | Rental payments, for business use |
| End of term | Pay any balloon and you keep owning it | Pay the residual to keep it, or refinance or upgrade | Ownership passes after the last payment | Return, upgrade or extend |
| On the balance sheet | Asset and loan | Usually asset and lease liability | Asset and liability | Often off balance sheet |
| Usually suits | Most businesses that want to own the asset | Businesses that prefer to lease and claim the rentals | Businesses that want ownership without a residual | Assets you upgrade often, such as IT or fleets |
Related guides
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FAQs
Questions about chattel mortgage vs lease vs hire purchase
A chattel mortgage is a business loan to buy a vehicle or equipment, where your business owns the asset from the start and the lender takes a mortgage over it as security until the loan is repaid.
Neither is better for everyone. A chattel mortgage suits most businesses that want to own the asset and claim the GST upfront. A lease can suit businesses that prefer to claim rental payments or don't want to own the asset. Your accountant can tell you which suits your tax position.
With a chattel mortgage or hire purchase, a GST-registered business can generally claim the GST on the purchase price in its next BAS. With a lease, GST is charged on each rental and claimed as you go. Check with your accountant.
Both are lump sums left to pay at the end of the term. A balloon applies to a chattel mortgage, where you already own the asset. A residual applies to a lease, and paying it is how you take ownership. Both lower your regular repayments.
Not quite. With both, the lender owns the asset during the term. With hire purchase, ownership passes to you automatically after the final payment, while with a finance lease you pay a residual if you want to keep it.
A novated lease is a three-way agreement between an employee, their employer and a lender, used for salary packaging. It's for employees' cars rather than business-owned vehicles or equipment.
No. There's no cost to you for our service. We're paid by the lender when your finance settles, and there's no obligation to proceed.
This page is general information only and isn't credit, tax or financial advice. All lending is subject to each lender's credit criteria and assessment.