Hire Purchase vs Chattel Mortgage: Australian Business Finance Guide

Quick Answer

Choosing between hire purchase vs chattel mortgage is a critical decision for Australian businesses seeking equipment or vehicle finance, as each structure offers distinct ownership, tax, and accounting implications. A chattel mortgage provides immediate ownership of the asset with the lender holding a security interest, allowing businesses to claim full GST input tax credits upfront and potentially depreciate the asset. Hire purchase, conversely, involves the lender owning the asset throughout the term, with the business gaining ownership only after the final payment, including any residual or balloon. Rates for both typically range from 7-14% p.a. in 2025 (indicative only), depending on business profile, asset type, and lender. Loan amounts from $10,000 up to $5,000,000+ cover a wide range of assets over 2-7 year terms. Most lenders require an active ABN and a solid trading history. Modern comparison platforms can provide efficient assessment, with settlements possible within 24-48 hours for straightforward applications (subject to lender and circumstances).

Rates are indicative examples only. Actual rates depend on individual circumstances and lender assessment.

1. Understanding Your Business Finance Needs

For Australian businesses looking to acquire essential assets like vehicles, machinery, or equipment, navigating the world of finance options can be complex. Two of the most common and often confused financing structures are chattel mortgage and commercial hire purchase. While both facilitate the acquisition of assets, their fundamental differences in ownership, tax treatment, and accounting implications can significantly impact your business’s cash flow and financial reporting. Making the right choice between hire purchase vs chattel mortgage is crucial for optimising your financial position and ensuring compliance with Australian tax laws. This guide will help you understand these options, their pros and cons, and how to determine which is best suited for your specific business needs in 2026.

2. What is a Chattel Mortgage?

A chattel mortgage is a popular type of asset finance in Australia, particularly for businesses, where the lender provides funds to purchase a movable asset (a ‘chattel’). The key feature is that your business takes immediate legal ownership of the asset from the outset. The lender then registers a security interest over the asset (often on the Personal Property Securities Register or PPSR) until the loan is fully repaid. This structure is akin to a traditional home mortgage, but for business assets.

Pros of a Chattel Mortgage

• Immediate Ownership: Your business owns the asset from day one, which can be important for balance sheet reporting and asset control.
• GST Input Tax Credits: For businesses registered for GST, the full GST component of the asset’s purchase price can typically be claimed back in the next Business Activity Statement (BAS) after purchase.
• Depreciation: As the owner, your business can claim depreciation on the asset (subject to ATO guidelines and your accountant’s advice), which reduces your taxable income.
• Tax Deductions: Both the interest paid on the loan and the depreciation of the asset are generally tax-deductible. Running costs like fuel, maintenance, and insurance are also deductible.
• Flexible Repayments: Lenders often provide flexible repayment structures, including options for balloon payments at the end of the term to reduce monthly instalments.
• Lower Interest Rates: Because the loan is secured by the asset, chattel mortgages often attract more competitive interest rates compared to unsecured business loans.

Cons of a Chattel Mortgage

• Security Interest: The lender holds a security interest over the asset. If loan repayments are not met, the lender has the right to repossess the asset.
• Balance Sheet Impact: The asset and the corresponding loan liability are both recorded on your business’s balance sheet, which may impact certain financial ratios.
• GST Impact if Not Registered: If your business is not registered for GST, you cannot claim the input tax credit.
• Early Payout Costs: While possible, early payout or refinancing may incur fees or penalties depending on the lender’s terms.

3. What is Commercial Hire Purchase?

Commercial Hire Purchase (CHP), often simply referred to as hire purchase, is another common method for Australian businesses to finance assets. In a CHP agreement, the lender (the owner) purchases the asset on behalf of the business (the hirer). The business then “hires” the asset from the lender over a fixed term, making regular repayments. Crucially, the business does not gain legal ownership of the asset until the very last payment has been made, including any final balloon or residual payment. At this point, the title of the asset transfers from the lender to the business.

Pros of Commercial Hire Purchase

• Off-Balance Sheet Reporting (Historically): Historically, CHP could be treated as an off-balance sheet item, which some businesses preferred for financial reporting. However, changes in accounting standards (AASB 16) mean that for most businesses, assets under CHP are now recognised on the balance sheet, similar to chattel mortgages. Consult your accountant for specific advice.
• GST Claimed on Repayments: For GST-registered businesses, the GST component of the repayments (both principal and interest) can typically be claimed back over the life of the loan, rather than upfront.
• Tax Deductions: The interest component of the repayments and the running costs of the asset are generally tax-deductible.
• Fixed Repayments: Repayments are usually fixed for the term, providing certainty for cash flow management.
• Balloon Payment Options: Like chattel mortgages, CHP agreements can include a balloon payment at the end of the term to reduce regular instalments.

Cons of Commercial Hire Purchase

• No Immediate Ownership: The most significant drawback is that your business does not own the asset until the final payment. This can limit your flexibility in selling or modifying the asset during the term.
• No Depreciation Claim: As the legal owner, the lender typically claims depreciation on the asset. This is factored into your repayments, meaning your business cannot directly claim depreciation.
• GST Timing: While GST is claimable, it’s typically spread over the life of the loan, which may not be ideal for businesses seeking an immediate cash flow boost.
• Early Payout Costs: Similar to chattel mortgages, early termination or payout can involve additional costs or penalties.

4. Key Differences: Hire Purchase vs Chattel Mortgage

Understanding the nuances between hire purchase vs chattel mortgage is vital for strategic financial planning. Here’s a breakdown of the core distinctions:

5. When to Choose a Chattel Mortgage

A chattel mortgage is often the preferred choice for Australian businesses that:

• Are GST-registered and want an immediate cash flow boost: The ability to claim the full GST input tax credit upfront can significantly improve immediate cash flow.
• Want immediate ownership of the asset: If having the asset immediately on your balance sheet and full legal control is important.
• Wish to claim depreciation: Businesses aiming to reduce their taxable income through depreciation deductions will find a chattel mortgage advantageous.
• Operate on an accrual accounting basis: This structure aligns well with accrual accounting principles, where the asset and liability are recognised from the start.
• Seek flexibility with balloon payments: Many lenders offer balloon payment options with chattel mortgages to tailor repayments to your cash flow.

For example, a construction company financing a new excavator or a transport business acquiring a prime mover would typically lean towards a chattel mortgage to leverage the upfront GST and depreciation benefits. You can explore more about this finance option in our comprehensive Chattel Mortgage Guide.

6. When to Choose Commercial Hire Purchase

Commercial hire purchase might be more suitable for businesses that:

• Prefer to spread their GST claims: If an upfront GST claim isn’t a priority, or if your business prefers to claim GST over the life of the loan.
• Are not GST registered: In this scenario, the upfront GST benefit of a chattel mortgage is irrelevant.
• Have specific accounting preferences (though less common now): While AASB 16 has changed how leases are accounted for, some specific scenarios or older agreements might still benefit. Always consult your accountant.
• Prioritise fixed, predictable costs: CHP offers very clear, fixed repayments over the term, which can simplify budgeting.

For example, a new consulting firm acquiring office equipment or a small retail business financing a new point-of-sale system might consider hire purchase if their accountant advises it aligns better with their specific financial strategy or if immediate GST claims are not a primary concern. Learn more about this option on our Equipment Finance Australia page.

7. Eligibility Criteria for Asset Finance

Eligibility criteria for both chattel mortgages and hire purchase are broadly similar, focusing on the business’s capacity to repay the loan. These are general guidelines only, and specific requirements vary by lender, loan amount, asset type, and industry.

• Trading History: Most traditional lenders require a minimum of 12-24 months trading history. Specialist lenders may consider newer businesses (e.g., 6 months ABN) or startups.
• ABN & GST Registration: An active ABN is required. GST registration is crucial for claiming associated tax benefits.
• Financial Health: Lenders assess your business’s financial statements (BAS, bank statements, profit & loss, balance sheet) to determine serviceability. Low-doc options may be available for established businesses with strong cash flow but limited financials.
• Credit History: A reasonable business and personal credit history is generally required. However, specialist brokers can often assist businesses with minor credit impairments.
• Asset Type: The asset must be for business use (e.g., commercial vehicles, machinery, equipment). Lenders have criteria for the age and condition of used equipment.
• Deposit: While 100% finance is possible, a deposit can strengthen your application and potentially secure a better rate.

If you’re unsure about your eligibility, particularly for complex scenarios or if your business is newer, speaking with a specialist broker can provide tailored guidance and access to a wider range of lenders. Our team can help you understand options like Low-Doc Business Loans if traditional financials are a challenge.

8. The Application Process: Traditional vs. Streamlined

The process of securing asset finance, whether a chattel mortgage or hire purchase, can vary significantly depending on whether you go directly to a major bank or utilise a modern comparison platform and specialist broker.

1. Traditional Bank Application: Typically involves multiple appointments, extensive paperwork, and often takes weeks for approval and settlement. You’re usually limited to that bank’s specific products and rates, which may not be the most competitive for your unique profile.

2. Streamlined Comparison Platform (like Loan Phone): Our platform allows you to submit your details once and compare personalised options from over 100 lenders simultaneously, often providing indicative offers within minutes. You gain access to expert guidance from brokers who understand the Australian lending landscape and can negotiate on your behalf, particularly for “left-of-centre” or complex scenarios. This includes major banks (CBA, NAB, Westpac, ANZ), specialist equipment financiers, and non-bank lenders, increasing your chances of finding the best rates and terms. Digital document handling and streamlined processes accelerate approvals and settlements. Although each lender has different timeframes and your circumstances will vary, our streamlined system allows you to get approved on an apples-for-apples basis much quicker than any other broker or direct bank option.

9. Tax Implications: A Closer Look

Important: Tax benefits depend entirely on your individual business structure, circumstances, and how you use the asset. The information below is general in nature only. Always seek independent advice from a qualified tax professional or accountant before making any financing decisions.

Both chattel mortgages and commercial hire purchase offer tax benefits, but they differ in timing and nature:

• GST:
  • Chattel Mortgage: Businesses can generally claim the full GST input tax credit on the purchase price of the asset upfront in their next BAS, providing an immediate cash flow advantage.
  • Hire Purchase: GST is typically charged on the principal and interest components of each repayment. Businesses claim the GST input tax credit on these components over the life of the loan.
• Depreciation:
  • Chattel Mortgage: As the business owns the asset, it can claim depreciation deductions based on the asset’s effective life, according to ATO guidelines. This reduces the business’s taxable income.
  • Hire Purchase: The lender owns the asset until the final payment, so the business cannot claim depreciation. The cost of depreciation is effectively built into the hire purchase payments.
• Interest Deductions:
  • Both: The interest component of repayments for both chattel mortgages and hire purchase is generally tax-deductible.
• Instant Asset Write-Off:
  • Chattel Mortgage: Assets financed via chattel mortgage are eligible for the Australian Government’s instant asset write-off (or temporary full expensing, depending on the current legislation and business turnover), allowing businesses to immediately deduct the full cost of eligible assets. This is a significant advantage for many businesses.
  • Hire Purchase: Since the business doesn’t own the asset until the end of the term, assets under hire purchase are generally not eligible for instant asset write-off until ownership transfers.

Consult the ATO’s website for the most current tax laws and guidelines.

10. Example: Financing a Commercial Vehicle

This example is for illustrative purposes only. Actual rates, terms, repayments, and tax implications depend on lender assessment, your individual circumstances, current market conditions, and specific ATO guidelines. Always consult your accountant regarding tax implications specific to your business.

11. Frequently Asked Questions

12. Get the Right Finance for Your Business

Ready to explore your equipment and vehicle finance options?

Choosing between hire purchase vs chattel mortgage requires a clear understanding of your business’s financial structure, cash flow needs, and tax strategy. Loan Phone combines streamlined online comparison with specialist broker expertise to help you make an informed decision.

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Last updated: 2026-01-23