Chattel mortgage vs finance lease: which one 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.
General information only
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.
What’s 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 on a two-year lease. You 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 strong, is usually the smarter play. A chattel mortgage usually suits an asset worth holding onto.
A chattel mortgage is yours from day one. A finance lease means the lender owns it while you use it.
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 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 claimed progressively on each repayment rather than upfront, according to PKF Australia, 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.
How much can you write off instantly under a chattel mortgage?
Under the ATO’s instant asset write-off, the limit has been $20,000 for an asset first used or installed ready for use on or after 1 July 2023, and it applies per asset rather than per business. From 1 July 2026 that limit is permanent for small businesses with aggregated turnover under $10 million. Eligibility turns on aggregated turnover including affiliates and connected entities, the purchase date, the date the asset was first used or installed ready for use, and the cost being under the limit. The clock runs from when the asset is ready to use, not from contract signing or lender settlement. That’s the trap on a financed asset bought near the end of a financial year. And the deduction only applies under a chattel mortgage, where you own the asset from day one. Under a finance lease the lender owns it for the term.
| 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?
A balloon lowers the regular repayment on either structure. It doesn’t make the money go away. You still pay it at the end, through balloon refinance if the asset qualifies, or a term loan or overdraft if it doesn’t.
It’s worth seeing the size of that trade rather than taking it on trust. On a $60,000 asset over five years at an illustrative 8.50% p.a., a 30% balloon drops the repayment from $1,230.99 to $989.19 a month, a saving of $241.80. Meanwhile the total cost of finance rises from $13,859.51 to $17,351.66, so the balloon costs $3,492.15 more across the term and leaves $18,000 owing on a five-year-old asset. The full working is on our chattel mortgage page.
That can be exactly the right trade when the monthly number is what keeps the business running, and the wrong one if nobody has told you the balloon is money you still owe rather than money you saved. On a finance lease the equivalent figure is the residual, and the difference is who carries the risk that the asset is worth less than it.
And don’t choose on rate alone. Payout penalties, or the lack of them, and the limit increases some lenders give after 12 months of clean repayments can be worth more than a slightly cheaper 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, under either structure. Some lenders on our panel now have no age limit at all. The age shows up in the rate instead: a newer asset is easier to resell if the lender ever has to recover it, so it prices cheaper. The same goes for startups. A signed works contract and clear cashflow forecasts from your accountant are often enough to be considered for either structure, even without years of trading history.
Not sure which structure fits your asset?
Tell us what you’re financing and how long you’ll want it for, and we’ll tell you whether a chattel mortgage or a finance lease makes more sense.
Frequently asked questions
Give us the basics below and we’ll call you within the hour, or at the time you choose, then come back with the two or three offers worth your time.