Finance Lease vs Chattel Mortgage: Which One Suits Your Business?

When it comes to financing a vehicle or equipment for your business, two of the most common options you'll come across are the finance lease and the chattel mortgage. Both can be excellent choices depending on your circumstances — but they work quite differently, and the right one for you depends on a few key factors.

I help business owners navigate this decision all the time, so let me walk you through the main differences.

The Fundamental Difference: Who Owns the Asset?

This is the core distinction. With a chattel mortgage, you own the asset from day one. The lender simply holds a mortgage over it until the loan is paid off. With a finance lease, the lender (or finance company) owns the asset throughout the lease term. You use it, you pay for it, but you don't own it.

How a Chattel Mortgage Works

Because you own the asset, you can claim depreciation on it and, if you're GST-registered, claim the GST upfront on your next BAS. The interest portion of your repayments is tax deductible. You can also set a balloon payment (residual) at the end to reduce monthly repayments during the term.

How a Finance Lease Works

With a finance lease, the lease payments are fully deductible as a business expense. You don't claim depreciation because you don't own the asset. However, GST is included in each lease repayment rather than upfront, and you can claim those GST credits progressively on your BAS.

At the end of the lease term, you typically have three options: pay the residual and take ownership, refinance the residual for another term, or hand the asset back to the financier.

Which One Is Better?

Chattel Mortgage is Often Better When...

You want to own the asset outright at the end. You want to claim GST upfront (which is great for cash flow). You want to claim depreciation, particularly if you're eligible for the instant asset write-off. The asset is a vehicle that you'll hold long term.

Finance Lease is Often Better When...

You want the option to upgrade the asset regularly. You prefer fully deductible repayments as a simple operating expense. You don't mind not owning the asset. The residual at the end is set at fair market value, giving you flexibility.

What About the Numbers?

In practice, the total cost of ownership over the full term is often similar between the two structures. The difference is more about timing of tax deductions, balance sheet treatment, and flexibility at the end of the term. Your accountant can help you model both scenarios for your specific business.

Not Sure Which One Is Right for You?

That's exactly what I'm here for. Get in touch and I'll help you compare the two options side by side for your specific situation. There's no obligation — just a straightforward conversation to point you in the right direction.