Comparing equipment financing options is about more than finding the smallest monthly repayment.

Australian businesses purchasing vehicles, machinery or commercial equipment may come across several structures, including chattel mortgage, hire purchase and rent to own.

All three can spread the cost of equipment over time, but they do not work in exactly the same way.

The biggest differences usually come down to:

• Who owns the equipment
• When ownership begins
• How repayments work
• Whether a deposit can be used
• Whether a balloon or final payment applies
• What happens at the end of the agreement
• How long the business expects to keep the equipment
• The total cost of the finance
• The tax and accounting treatment

For many Australian businesses intending to buy and own an asset, a chattel mortgage provides a straightforward structure because the business owns the equipment from settlement while the lender holds security over it.

Hire purchase and rent-to-own use different ownership models.

The Asset Finance Shop (TAFS) primarily arranges chattel mortgage finance for eligible commercial vehicles, machinery and equipment. TAFS can assess the business, proposed purchase and finance requirements before comparing suitable options through access to more than 80 bank and non-bank lenders.

This guide explains chattel mortgage vs hire purchase, how rent to own equipment differs, and what Australian businesses should compare before choosing an equipment finance structure.

What Is a Chattel Mortgage?

A chattel mortgage is a commercial loan used to purchase a business asset.

The asset being financed is the "chattel".

That might be:

• A truck
• Ute
• Van
• Excavator
• Skid steer
• Tractor
• Harvester
• Forklift
• Manufacturing machine
• Commercial cleaning equipment
• Other business machinery

Under a chattel mortgage:

• The business purchases the asset
• The business owns the asset from settlement
• The lender provides the finance
• The lender registers security over the asset
• The business makes agreed repayments
• A deposit can potentially be included
• Trade-in equity can potentially contribute
• A balloon payment may be available
• The lender removes its security after the finance is repaid

The important point is ownership.

The business owns the asset while the lender has a registered financial interest in it.

What Is Hire Purchase?

A hire purchase agreement uses a different structure.

Under a traditional hire purchase arrangement, the finance provider generally owns the equipment during the agreement.

The business uses the asset and makes agreed payments.

Ownership generally transfers according to the terms of the agreement once the required payments and conditions have been completed.

That means the business can use the equipment throughout the agreement, but it does not initially own the asset in the same way it does under a chattel mortgage.

Exact hire purchase terms can vary between providers and agreements.

TAFS primarily arranges chattel mortgage finance, so hire purchase is discussed here as a comparison rather than as TAFS's main equipment finance structure.

What Is Rent to Own Equipment Finance?

Rent to own equipment follows another ownership model.

The provider generally owns the equipment during the rental period.

The business pays to use the asset.

Depending on the agreement, ownership may transfer later once the required rental period, payments or other conditions have been completed.

A rent-to-own structure should therefore be assessed carefully around:

• Initial ownership
• Regular rental payments
• Length of the agreement
• End-of-term amount
• Conditions required for ownership
• Total amount paid
• What happens if the business wants to exit early

The fact that a business may eventually own the equipment does not mean rent to own and chattel mortgage are the same product.

Chattel Mortgage vs Hire Purchase

The clearest difference between chattel mortgage vs hire purchase is ownership.

Chattel Mortgage

The business owns the equipment from settlement.

The lender provides finance and takes security over the asset.

Hire Purchase

The finance provider generally owns the equipment during the hire purchase agreement.

The business uses the equipment and ownership generally transfers later according to the contract.

This distinction can affect how a business thinks about:

• Asset ownership
• Accounting
• Tax treatment
• End-of-term obligations
• Replacement plans

For a business intending to buy an asset and retain it long term, immediate ownership can be an important consideration.

Chattel Mortgage vs Rent to Own Equipment

The ownership difference is also important when comparing rent to own equipment with a chattel mortgage.

Chattel Mortgage

The business owns the equipment from settlement.

Rent to Own

The provider generally owns the equipment during the rental period, with ownership potentially transferring later under the agreement.

That means businesses should ask:

Do we want to buy this machine now, or primarily pay to use it before potentially taking ownership later?

Those are different commercial objectives.

Chattel Mortgage vs Hire Purchase vs Rent to Own

The specific terms of an individual agreement should always be checked before making a decision.

Which Structure Gives You Ownership Immediately?

A chattel mortgage.

The business purchases the equipment when the finance settles.

That can be important where the business:

• Wants the equipment recorded as its asset from the beginning
• Intends to keep it for several years
• Wants control over the asset
• Plans to eventually trade or sell it
• Wants a traditional business asset purchase structure

Hire purchase and rent-to-own generally delay ownership until later in the agreement.

Why Does Ownership Matter?

Ownership can affect how the business thinks about the equipment throughout its working life.

Consider a civil contractor purchasing an excavator expected to remain in the fleet for eight years.

If the business intends to:

• Use the excavator daily
• Maintain it
• Modify it
• Add attachments
• Eventually trade or sell it

then owning the machine from settlement may fit naturally with the business plan.

Another business may place less importance on immediate ownership and focus more heavily on a particular payment structure.

Neither factor should be considered in isolation.

How Do Repayments Work Under a Chattel Mortgage?

A chattel mortgage repayment is based on the commercial loan used to purchase the equipment.

The repayment can depend on:

• Purchase price
• Deposit
• Trade-in
• Amount financed
• Interest rate
• Finance term
• Balloon payment
• Lender fees

For example:

Equipment price: $150,000
Deposit: $20,000
Amount financed: $130,000
Finance term: 5 years

The lender calculates repayments according to the agreed finance structure.

If a balloon is included, regular repayments are generally lower because some principal remains outstanding at the end.

How Do Hire Purchase Payments Work?

Under hire purchase, the business makes agreed payments to the finance provider over the contract period.

The exact structure depends on the individual hire purchase agreement.

When comparing hire purchase with a chattel mortgage, look at:

• Initial payment
• Regular payment
• Term
• Final amount
• Fees
• Ownership transfer
• Total amount paid

Do not compare monthly payment alone.

How Do Rent-to-Own Payments Work?

Rent-to-own arrangements generally involve rental payments over an agreed period.

Depending on the contract, there may also be:

• Initial payment
• Ongoing rental
• Final purchase amount
• Ownership conditions
• End-of-term options

Two arrangements that both result in eventual equipment ownership can still have very different overall costs.

Always calculate what the business is expected to pay from beginning to end.

Comparing Monthly Repayments

The smallest monthly payment is not automatically the strongest equipment financing option.

Imagine three structures for the same machine.

Option A

Higher regular payment
Shorter term
No large final payment

Option B

Lower regular payment
Longer term
Large balloon at the end

Option C

Low-looking rental amount
Ownership only after additional end-of-term conditions

Looking only at the monthly figure does not show the complete outcome.

A better comparison includes:

• Amount paid upfront
• Regular payments
• Number of payments
• Interest or finance charges
• Balloon or final amount
• Fees
• Total estimated cost
• Ownership position

How Does a Balloon Work With a Chattel Mortgage?

A balloon is an amount of loan principal left outstanding at the end of the finance term.

For example:

Amount financed: $120,000
Term: 5 years
Balloon: $24,000

The business makes regular repayments during the five-year term.

At the end:

$24,000 remains payable.

The balloon generally reduces regular repayments because less principal is being repaid during the term.

Should Equipment Buyers Use a Balloon?

Potentially.

A balloon can help businesses retain more cash each month.

That may be useful where regular operating costs are significant.

A civil contractor may need cash available for:

• Fuel
• Wages
• Machine transport
• Repairs
• Project expenses

A transport operator may need cash for:

• Diesel
• Tyres
• Registration
• Insurance
• Servicing

The trade-off is the larger final amount.

Before choosing a balloon, consider:

• Expected equipment value
• Expected operating hours
• How long the asset will be kept
• Replacement plans
• Expected trade-in value
• Ability to manage the final payment

The largest possible balloon is not automatically the strongest structure.

What Happens at the End of a Chattel Mortgage?

Once the loan and any final balloon have been repaid, the lender removes its security.

The business already owns the equipment.

It can then:

• Keep using it
• Sell it
• Trade it
• Replace it
• Keep it as a backup asset

There is no separate ownership transfer required simply because the finance term has ended.

What Happens at the End of Hire Purchase?

Under a traditional hire purchase agreement, ownership generally transfers according to the terms of the contract once the required payments and conditions have been completed.

The exact process should be checked in the agreement.

Questions to ask include:

• Is there a final payment?
• Are there any transfer conditions?
• When exactly does ownership pass?
• Are there any additional fees?

What Happens at the End of Rent to Own?

This can vary significantly by agreement.

The business should confirm:

• Whether ownership transfers
• Whether a final payment is required
• What conditions apply
• Whether continued rental is possible
• What happens if the business does not exercise the ownership option

Never assume that "rent to own" means the business automatically owns the asset after making a certain number of regular payments.

Read the specific agreement.

Deposit Options

A chattel mortgage can potentially be structured with a deposit.

For example:

Machine price: $200,000
Deposit: $40,000
Finance amount: $160,000

A larger deposit generally means:

• Less money borrowed
• Lower repayments
• Lower interest cost

But it also means more business cash is used upfront.

Should You Make a Large Equipment Deposit?

Not automatically.

Equipment buyers should also consider working capital.

A contractor purchasing a machine may still need money for:

• Wages
• Fuel
• Insurance
• Materials
• Maintenance
• Transport
• Supplier invoices
• Tax obligations

A larger deposit can reduce debt, but retaining cash can also have value.

The strongest structure is the one that balances both.

Can Trade-In Equity Be Used?

Potentially.

A business replacing existing equipment may have equity available.

For example:

Existing machine value: $80,000
Finance payout: $30,000

Potential equity:

$50,000

That amount may potentially contribute toward the replacement equipment.

This can reduce the new finance amount without requiring the business to provide the same amount in cash.

Which Structure Is Better for Businesses That Want to Keep Equipment?

A chattel mortgage can be a natural fit where the business intends to purchase and retain the asset.

For example, a manufacturing company purchasing a machine it expects to use for ten years may place a high value on:

• Ownership from settlement
• Long-term control
• Ability to repay the purchase over time

A business that expects to replace equipment frequently may assess the decision differently.

The intended ownership period should form part of the comparison.

Which Structure Is Better for Equipment That Will Be Replaced Regularly?

There is no single answer.

Consider:

• How often the asset is replaced
• Expected resale value
• Expected utilisation
• Finance term
• Total cost
• End-of-term position

For example, a business replacing vehicles every four years may structure finance differently from a contractor keeping machinery for ten years.

The finance should reflect the actual replacement cycle.

Equipment Financing Options and Working Capital

One of the main reasons businesses finance equipment is to avoid using the entire purchase price upfront.

Consider a business buying:

$250,000 of machinery

Paying cash removes $250,000 immediately.

Financing allows more capital to remain available for the rest of the business.

That retained cash may be used for:

• Wages
• Materials
• Fuel
• Stock
• Insurance
• Marketing
• Project mobilisation
• Repairs
• Tax

The trade-off is the cost of finance.

The decision should compare the benefit of retaining capital with the cost of borrowing.

Chattel Mortgage vs Hire Purchase for Cash Flow

Both structures spread the cost of equipment.

However, the actual cash flow outcome depends on the individual agreement.

Compare:

• Initial contribution
• Monthly repayment
• Term
• Final payment
• Fees
• Total amount paid

Do not assume one product will always produce lower repayments.

The lender, asset and finance structure matter.

Chattel Mortgage vs Rent to Own for Cash Flow

Rent-to-own may initially appear attractive because the payment is presented as a rental amount.

But the correct comparison is not:

Loan repayment vs rental payment

alone.

Instead compare:

Total cost to reach the same ownership position.

If the goal is eventually to own the equipment, calculate everything the business will pay before that ownership occurs.

What About Tax Treatment?

Tax treatment can differ between finance structures.

For a chattel mortgage, the business owns the asset from settlement.

Depending on the circumstances, areas your accountant may consider include:

• Finance interest
• Depreciation
• GST
• Finance fees
• Business-use percentage

Hire purchase and rent-to-own arrangements can have different accounting and tax treatment.

TAFS arranges the finance.

Your accountant should advise which tax treatment applies to your business and equipment.

Do Not Choose Equipment Finance Only for a Tax Deduction

A finance structure should first make commercial sense.

Questions such as these generally matter more:

• Can the business afford it?
• Does the equipment generate income?
• How long will it be used?
• What will it be worth later?
• How much cash should remain in the business?
• What happens at the end?

Tax treatment is important, but it should be assessed alongside the commercial outcome rather than being the only reason for choosing a structure.

What Equipment Can Be Purchased With a Chattel Mortgage?

TAFS can arrange eligible business asset finance for a broad range of equipment.

Earthmoving and Construction

This can include:

• Excavators
• Mini excavators
• Skid steers
• Posi-tracks
• Loaders
• Rollers
• Graders
• Dozers

Transport

This can include:

• Prime movers
• Rigid trucks
• Tippers
• Refrigerated trucks
• Trailers
• Vans
• Utes

Agriculture

This can include:

• Tractors
• Harvesters
• Headers
• Seeders
• Balers
• Agricultural implements

Materials Handling

This can include:

• Forklifts
• Telehandlers
• Access equipment
• Scissor lifts

Manufacturing

This can include:

• CNC machines
• Lathes
• Presses
• Fabrication equipment
• Packaging machinery
• Production equipment

Other identifiable commercial assets may also qualify depending on lender criteria.

Can Used Equipment Be Financed With a Chattel Mortgage?

Yes, through selected lenders.

Used equipment finance can potentially be arranged for machinery purchased from:

• Dealers
• Private sellers
• Auctions

The lender may assess:

• Equipment age
• Condition
• Operating hours
• Purchase price
• Market value
• Expected working life

Used equipment can therefore still suit a chattel mortgage structure.

What About Private-Sale Equipment?

Selected lenders can finance eligible private-sale equipment.

Additional checks may be required around:

• Seller identity
• Proof of ownership
• Serial number
• Existing finance
• Purchase price
• Equipment condition
• Market value

An inspection or valuation may also be required.

Can Sole Traders Use a Chattel Mortgage?

Yes, subject to lender approval.

A sole trader can potentially use a chattel mortgage to finance eligible business vehicles, machinery and equipment.

The lender may assess:

• ABN history
• Industry experience
• Business income
• Bank statements
• Credit history
• Existing debts
• Equipment purchase
• Deposit

The business structure does not automatically determine which equipment financing options are available.

Can a New ABN Use a Chattel Mortgage?

Potentially.

Selected lenders can consider newer businesses.

Where trading history is limited, the lender may place more weight on:

• Previous industry experience
• Current work
• Upcoming contracts
• Business bank statements
• Credit profile
• Working capital
• Deposit
• Asset being purchased

A newer ABN should be assessed on the complete application rather than registration age alone.

Is Low Doc Chattel Mortgage Finance Available?

Potentially.

Selected lenders can offer low documentation pathways.

Instead of requiring complete financial statements in every application, the lender may assess information such as:

• Recent business bank statements
• ABN history
• Industry experience
• Credit profile
• Existing finance
• Current work
• Asset details

The documentation required depends on the lender.

How Do You Compare Two Chattel Mortgage Offers?

Even after deciding that a chattel mortgage is the right structure, you may still have multiple offers to compare.

Look at the full finance package.

Interest Rate

Compare the actual rate being offered to your business.

Finance Amount

Make sure you are comparing the same amount borrowed.

Deposit

One lender may require more upfront contribution.

Term

A longer term can reduce regular repayments but keep the debt outstanding for longer.

Balloon

A larger balloon can reduce repayments but creates a larger final amount.

Fees

Check:

• Establishment fees
• Security registration fees
• Other lender charges

Early Payout

Understand what happens if you want to sell or refinance the equipment before the end of the term.

Total Finance Cost

This is one of the most useful comparisons.

A lower rate or repayment does not automatically mean a lower total cost.

Example: Comparing Two Chattel Mortgage Options

Consider equipment costing:

$150,000

Option A

Deposit: $20,000
Finance: $130,000
Term: 5 years
Balloon: $0

Option B

Deposit: $10,000
Finance: $140,000
Term: 5 years
Balloon: $28,000

Option B may produce a lower regular repayment.

But it also:

• Requires less cash upfront
• Finances more money
• Leaves $28,000 owing at the end

Neither is automatically better.

The right choice depends on whether the business values lower repayments and retained working capital or faster debt reduction.

How Equipment Buyers Should Compare Finance Structures

Use the same checklist for every option.

Ownership

Who owns the equipment today?

Upfront Cost

What deposit or initial payment is required?

Regular Payments

How much does the business pay each month?

Finance Term

How long does the agreement continue?

Final Payment

Is there a balloon, residual or purchase amount?

End-of-Term Position

Does the business already own the asset, or does ownership transfer later?

Total Cost

What will the business pay from beginning to end?

Flexibility

What happens if the business wants to repay early?

Asset Plans

How long does the business actually expect to keep the equipment?

Tax Treatment

What does the accountant recommend for the business's circumstances?

Which Option Suits a Business Buying Its First Machine?

A first-time equipment buyer should keep the structure understandable.

The business should know:

• What it is borrowing
• What the repayment is
• What it owns
• What it will owe at the end
• What happens if it sells the machine

A chattel mortgage can provide a relatively clear structure because the business owns the equipment from settlement and repays the commercial loan over time.

Which Option Suits an Established Business?

Established businesses may have more flexibility around:

• Deposits
• Trade-ins
• Balloon payments
• Finance terms
• Multiple asset purchases

For example, a civil business replacing an excavator may use:

Trade-in equity + chattel mortgage + balloon

to structure the replacement around cash flow and expected future equipment value.

The strongest option depends on the wider business.

Should You Compare the Interest Rate First?

No.

The interest rate is important, but it should be considered as part of the complete structure.

For example:

Offer A

Lower rate
Large deposit
Short term
High repayment

Offer B

Slightly higher rate
Smaller deposit
Longer term
Lower repayment

Offer A may cost less in total.

Offer B may preserve more working capital.

The answer depends on what the business needs.

Why Use an Asset Finance Broker?

Different lenders have different policies for:

• Equipment types
• New ABNs
• Low doc applications
• Used assets
• Private sales
• Deposits
• Balloons
• Credit history
• Finance amounts

Applying directly to one lender means the business is assessed according to that lender's policy.

A specialised asset finance broker can first assess the business and equipment before comparing suitable lender options.

TAFS has access to more than 80 bank and non-bank lenders.

How TAFS Approaches Chattel Mortgage Finance

Step 1: Understand the Equipment

TAFS reviews:

• Asset type
• New or used
• Purchase price
• Seller
• Age
• Expected business use

Step 2: Understand the Business

TAFS can assess:

• ABN history
• Trading history
• Industry experience
• Available documents
• Existing finance
• Credit profile

Step 3: Review the Finance Structure

TAFS can compare different combinations of:

• Deposit
• Trade-in
• Amount financed
• Term
• Repayment
• Balloon

Step 4: Compare Suitable Lenders

Different lenders may produce different:

• Rates
• Deposit requirements
• Terms
• Balloon options
• Documentation requirements

TAFS can compare suitable options through its lender panel.

Step 5: Select the Structure

The business can then consider the repayment alongside:

• Working capital
• Asset life
• Expected resale value
• Replacement plans

Step 6: Formal Application and Settlement

Once a suitable lender and structure are selected, the application can move through approval and settlement.

Questions to Ask Before Choosing Equipment Finance

Before committing to chattel mortgage, hire purchase or rent to own, ask:

1. Who owns the equipment from day one?
2. When does ownership transfer?
3. How much do I need to pay upfront?
4. What is the regular repayment?
5. How long is the agreement?
6. Is there a balloon or final payment?
7. What will I have paid in total?
8. What happens at the end?
9. Can I repay early?
10. What happens if I sell the equipment?
11. Can trade-in equity be used?
12. Can I finance used equipment?
13. Can I buy privately?
14. What fees apply?
15. How does the structure affect working capital?
16. How long do I expect to keep the equipment?
17. What will the asset likely be worth at the end?
18. What does my accountant say about the tax treatment?

Frequently Asked Questions

What Is the Difference Between Chattel Mortgage and Hire Purchase?

The main difference is ownership.

With a chattel mortgage, the business owns the asset from settlement while the lender holds security over it.

Under traditional hire purchase, the finance provider generally owns the asset during the agreement and ownership generally transfers later according to the contract.

Is Chattel Mortgage Better Than Hire Purchase?

It depends on the business and the individual agreements being compared.

A chattel mortgage may suit a business that wants to own equipment from settlement and spread the purchase price over time.

What Is the Difference Between Chattel Mortgage and Rent to Own?

Under a chattel mortgage, the business owns the equipment from settlement.

Under a typical rent-to-own arrangement, the provider generally owns the equipment during the rental period and ownership may transfer later.

Is Rent to Own Cheaper Than a Chattel Mortgage?

Not necessarily.

Compare the total amount paid, regular payments, agreement term, final payment and ownership position rather than the advertised rental amount alone.

What Is a Chattel Mortgage?

A chattel mortgage is a commercial loan used to purchase a business asset.

The business owns the asset while the lender registers security over it until the finance is repaid.

Can Chattel Mortgage Be Used for Equipment?

Yes.

Eligible commercial vehicles, machinery and business equipment can potentially be financed with a chattel mortgage.

Can Sole Traders Use a Chattel Mortgage?

Yes, subject to lender approval.

Can New ABNs Get Chattel Mortgage Finance?

Potentially.

Selected lenders can consider newer businesses based on the complete application.

Can Used Equipment Be Financed?

Yes.

Selected lenders provide finance for eligible used commercial equipment.

Can Private-Sale Equipment Be Financed?

Yes, through selected lenders.

Additional seller and asset checks may apply.

Can a Chattel Mortgage Have a Balloon?

Potentially.

A balloon reduces regular repayments by leaving part of the principal outstanding at the end of the finance term.

Do I Need a Deposit?

Not always.

Deposit requirements depend on the business, asset and lender.

Can Trade-In Equity Be Used?

Potentially.

Available equity in existing equipment may contribute toward a replacement purchase.

Is Chattel Mortgage Interest Tax Deductible?

Eligible business-use interest may potentially be deductible depending on the circumstances.

Your accountant should confirm the treatment applying to your business.

Does TAFS Offer Hire Purchase?

TAFS primarily arranges chattel mortgage finance for eligible commercial vehicles, machinery and equipment.

Hire purchase is discussed so equipment buyers can understand the difference between common finance structures.

Does TAFS Offer Rent to Own?

TAFS primarily focuses on chattel mortgage finance rather than rent-to-own equipment structures.

How Many Lenders Can TAFS Compare?

TAFS has access to more than 80 bank and non-bank lenders.

What Should I Compare Between Chattel Mortgage Offers?

Compare:

• Interest rate
• Deposit
• Finance amount
• Term
• Repayment
• Balloon
• Fees
• Early payout conditions
• Total estimated finance cost

Compare Chattel Mortgage Options With TAFS

The right equipment financing option should suit the asset, the business and the way the equipment will actually be used.

For businesses that want to purchase and own machinery, vehicles or equipment from settlement, a chattel mortgage provides a clear ownership structure while spreading the purchase cost over an agreed finance term.

TAFS can review your equipment purchase, deposit or trade-in position, preferred repayment structure and business circumstances before comparing suitable chattel mortgage options through access to more than 80 bank and non-bank lenders.

The Asset Finance Shop (TAFS) is a commercial asset finance brokerage based in Sydney.
Information on this page is general in nature and doesn't take your personal circumstances into account. Speak to a TAFS broker for options tailored to your business, and to your accountant regarding tax treatment.