Chattel Mortgage vs Hire Purchase vs Finance Lease

Quick answer: A chattel mortgage is a loan secured against an asset your business generally owns from purchase. With hire purchase, the financier generally owns the asset until the agreement is paid out. Under a finance lease, the financier owns the asset while your business pays to use it. The right comparison depends on the contract, cash flow and advice from your accountant.

Chattel mortgage vs hire purchase: who owns the asset?

With a chattel mortgage, the business generally purchases and owns the equipment or vehicle from the outset. The lender takes a security interest in the asset while the loan is outstanding. The agreement sets out repayments, fees and whether a final balloon payment applies.

With hire purchase, the financier purchases the asset and allows the business to use it in return for instalments. Ownership generally transfers after the final payment and any other contractual requirements are met. Check the agreement for any final amount, fees and transfer conditions.

A finance lease is different again. The financier owns the asset and leases it to the business for an agreed term. At the end, a residual value and other conditions may apply. Renewal, purchase or return options are not automatic, so check the contract.

Compare more than the regular repayment

For each option, ask for a written breakdown of:

• The deposit and amount financed

• The repayment amount, frequency and term

• Any balloon, residual or other final obligation

• Total repayments and fees over the agreement

• Early payout conditions and possible break costs

• Who owns the asset during the term and what happens at the end

• Insurance, maintenance and use requirements

A lower regular payment can leave a larger final obligation. Refinancing is subject to lender assessment at the time, and the asset may be worth less than an amount owing.

Example: financing a work vehicle

A business purchasing a work vehicle may want to retain it after the agreement ends. It could compare owning it from the start under a chattel mortgage with acquiring it after a hire purchase, or using it under a lease with contract-specific end options. The comparison needs the same purchase price, term and deposit assumptions, plus any final amount and all fees.

This example is illustrative. It does not imply that any product or structure will be available to a particular business.

Tax and GST treatment

The GST and income tax treatment can differ between structures and depends on the terms, business use and your circumstances. Avoid choosing on the basis of a generic tax claim. Ask your accountant how each proposed agreement would be treated before signing.

Questions to ask before you choose

1. Who will legally own the asset at each stage?

2. What is the total payable, including all fees and any final amount?

3. Can the asset be sold, upgraded or paid out early, and on what terms?

4. What happens if the asset is damaged or its value falls?

5. How will the finance arrangement and business use be treated for tax and GST?

Compare equipment finance options

Explore Equipment Finance and our guide to equipment finance and chattel mortgages. Use the finance calculator for an estimate, then contact Tattersalls Finance to discuss the available options.

General information only. This is not financial, legal or tax advice and does not consider your circumstances. Lender criteria, terms, fees and credit assessment apply. Ask your accountant about tax and GST.