Chattel mortgage vs finance lease: which one actually fits?
The real question isn’t the rate. It’s whether you want to own the asset at the end of the term, and that answer changes what you can claim along the way.
A chattel mortgage means you own the asset from day one, it sits on your balance sheet, and the lender holds a mortgage over it until you’ve paid it off. A finance lease means the lender owns the asset and you pay to use it, usually with the option to hand it back, extend, or buy it out at the end. The decision comes down to one question: do you want to own this asset when the term ends?
What’s actually different between them?
With a chattel mortgage, the asset is yours immediately, repayments build equity, and you carry the resale risk at the end. With a finance lease, the lender carries that resale risk, your repayments are for the use of the asset, and you’re not stuck holding something that’s aged out of relevance for your business.
Say you’re financing a coffee machine for a two-year lease, hand it back at the end and get a newer model, rather than owning a machine with a shrinking resale value, a lease usually suits an asset that ages out fast. Now say you’re financing a truck and trailer for a five-year contract, where repayments sit well below what the contract earns you. Owning the asset at the end, when resale liquidity for a truck and trailer is genuinely strong, is usually the smarter play. A chattel mortgage usually suits an asset worth holding onto.
The asset holds its value, and you want to own it
Vehicles, trailers and machinery with strong resale liquidity are usually worth owning outright. You build equity, and depreciation and the instant asset write-off (for eligible assets) become available to you.
The asset ages out fast, or you’d rather not own it
Equipment that dates quickly, like commercial kitchen or tech-heavy gear, suits handing back and upgrading rather than owning something with shrinking resale value.
How does GST and depreciation actually work on each one?
On a chattel mortgage, a GST-registered business generally claims the GST on the purchase price upfront, in the BAS period the asset is acquired, and can claim depreciation because it owns the asset. On a finance lease, GST is generally claimed progressively on each lease payment rather than upfront, and because the lender retains ownership, you can’t claim depreciation on the asset itself.
This is general information, not tax advice, your accountant can confirm exactly how it applies to your business, including whether an asset qualifies for the instant asset write-off under a chattel mortgage.
We’re filming a segment with one of our asset finance partners on how they structure balloon payments and end-of-term options across both products. Once it’s up, it’ll sit here.
| What matters | Chattel mortgage | Finance lease |
|---|---|---|
| Ownership | Yours from day one | Lender owns it, you use it |
| GST timing | Claimed upfront in the BAS period of purchase | Claimed progressively on each payment |
| Depreciation | Available, since you own the asset | Not available, the lender owns it |
| End of term | You keep the asset (once the balloon, if any, is paid out) | Hand back, extend, or buy it out |
| Best suited to | Assets with strong resale value worth holding onto | Assets that age out or date quickly |
What about balloon payments?
Balloon payments on either structure help cashflow during the term by lowering your regular repayments, but the balloon still has to be paid out at the end. Balloon refinance products exist in the market, and if the asset doesn’t qualify for one, a term loan or overdraft can often cover the payout instead.
Rate isn’t always the deciding factor either. Early payout penalties, or the lack of them, and credit limit increases some lenders offer after 12 months of clean repayments, can matter more than a slightly cheaper headline rate.
Choose a chattel mortgage if
- The asset holds resale value over the term
- You want the depreciation and GST-upfront benefit
- You’re comfortable owning it once the balloon is paid out
Choose a finance lease if
- The asset dates quickly and you’d rather upgrade than own it
- You’d prefer the lender to carry the resale risk
- Handing it back at the end suits how the business runs
Can you finance an older asset either way?
Yes, some lenders on our panel now have no age restrictions at all. What does change is the rate, the newer the asset, the cheaper the rate tends to be, because a newer asset carries stronger resale liquidity if the lender ever needed to recover it. An older asset isn’t excluded, it’s just priced differently. A startup can also usually be considered for either structure with the right supporting information, a signed works contract and clear cashflow forecasts from your accountant are often enough, even without years of trading history behind it.
Not sure which structure fits your asset?
Tell us what you’re financing and how long you’ll actually want it for, and we’ll tell you honestly whether a chattel mortgage or a finance lease makes more sense.
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