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:
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.
A chattel mortgage is a commercial loan used to purchase a business asset.
The asset being financed is the "chattel".
That might be:
Under a chattel mortgage:
The important point is ownership.
The business owns the asset while the lender has a registered financial interest in it.
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.
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:
The fact that a business may eventually own the equipment does not mean rent to own and chattel mortgage are the same product.
The clearest difference between chattel mortgage vs hire purchase is ownership.
The business owns the equipment from settlement.
The lender provides finance and takes security over the asset.
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:
For a business intending to buy an asset and retain it long term, immediate ownership can be an important consideration.
The ownership difference is also important when comparing rent to own equipment with a chattel mortgage.
The business owns the equipment from settlement.
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.
|
Feature |
Chattel Mortgage |
Hire Purchase |
Rent to Own |
|
Business owns asset from settlement |
Yes |
Generally no |
Generally no |
|
Initial owner |
Business |
Finance provider |
Provider |
|
Regular payment |
Loan repayment |
Hire purchase payment |
Rental payment |
|
Provider/lender interest |
Lender holds security |
Provider generally owns asset during agreement |
Provider generally owns asset during rental period |
|
Ownership at end |
Business already owns asset |
Generally transfers under agreement |
May transfer under agreement |
|
Deposit may be possible |
Yes |
Depends on agreement |
Depends on agreement |
|
Balloon/final payment |
Potentially |
Depends on agreement |
Depends on structure |
|
Main TAFS equipment finance structure |
Yes |
No |
No |
The specific terms of an individual agreement should always be checked before making a decision.
A chattel mortgage.
The business purchases the equipment when the finance settles.
That can be important where the business:
Hire purchase and rent-to-own generally delay ownership until later in the agreement.
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:
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.
A chattel mortgage repayment is based on the commercial loan used to purchase the equipment.
The repayment can depend on:
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.
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:
Do not compare monthly payment alone.
Rent-to-own arrangements generally involve rental payments over an agreed period.
Depending on the contract, there may also be:
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.
The smallest monthly payment is not automatically the strongest equipment financing option.
Imagine three structures for the same machine.
Higher regular payment
Shorter term
No large final payment
Lower regular payment
Longer term
Large balloon at the end
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:
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.
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:
A transport operator may need cash for:
The trade-off is the larger final amount.
Before choosing a balloon, consider:
The largest possible balloon is not automatically the strongest structure.
Once the loan and any final balloon have been repaid, the lender removes its security.
The business already owns the equipment.
It can then:
There is no separate ownership transfer required simply because the finance term has ended.
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:
This can vary significantly by agreement.
The business should confirm:
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.
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:
But it also means more business cash is used upfront.
Not automatically.
Equipment buyers should also consider working capital.
A contractor purchasing a machine may still need money for:
A larger deposit can reduce debt, but retaining cash can also have value.
The strongest structure is the one that balances both.
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.
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:
A business that expects to replace equipment frequently may assess the decision differently.
The intended ownership period should form part of the comparison.
There is no single answer.
Consider:
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.
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:
The trade-off is the cost of finance.
The decision should compare the benefit of retaining capital with the cost of borrowing.
Both structures spread the cost of equipment.
However, the actual cash flow outcome depends on the individual agreement.
Compare:
Do not assume one product will always produce lower repayments.
The lender, asset and finance structure matter.
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.
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:
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.
A finance structure should first make commercial sense.
Questions such as these generally matter more:
Tax treatment is important, but it should be assessed alongside the commercial outcome rather than being the only reason for choosing a structure.
TAFS can arrange eligible business asset finance for a broad range of equipment.
This can include:
This can include:
This can include:
This can include:
This can include:
Other identifiable commercial assets may also qualify depending on lender criteria.
Yes, through selected lenders.
Used equipment finance can potentially be arranged for machinery purchased from:
The lender may assess:
Used equipment can therefore still suit a chattel mortgage structure.
Selected lenders can finance eligible private-sale equipment.
Additional checks may be required around:
An inspection or valuation may also be required.
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:
The business structure does not automatically determine which equipment financing options are available.
Potentially.
Selected lenders can consider newer businesses.
Where trading history is limited, the lender may place more weight on:
A newer ABN should be assessed on the complete application rather than registration age alone.
Potentially.
Selected lenders can offer low documentation pathways.
Instead of requiring complete financial statements in every application, the lender may assess information such as:
The documentation required depends on the lender.
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.
Compare the actual rate being offered to your business.
Make sure you are comparing the same amount borrowed.
One lender may require more upfront contribution.
A longer term can reduce regular repayments but keep the debt outstanding for longer.
A larger balloon can reduce repayments but creates a larger final amount.
Check:
Understand what happens if you want to sell or refinance the equipment before the end of the term.
This is one of the most useful comparisons.
A lower rate or repayment does not automatically mean a lower total cost.
Consider equipment costing:
$150,000
Deposit: $20,000
Finance: $130,000
Term: 5 years
Balloon: $0
Deposit: $10,000
Finance: $140,000
Term: 5 years
Balloon: $28,000
Option B may produce a lower regular repayment.
But it also:
Neither is automatically better.
The right choice depends on whether the business values lower repayments and retained working capital or faster debt reduction.
Use the same checklist for every option.
Who owns the equipment today?
What deposit or initial payment is required?
How much does the business pay each month?
How long does the agreement continue?
Is there a balloon, residual or purchase amount?
Does the business already own the asset, or does ownership transfer later?
What will the business pay from beginning to end?
What happens if the business wants to repay early?
How long does the business actually expect to keep the equipment?
What does the accountant recommend for the business's circumstances?
A first-time equipment buyer should keep the structure understandable.
The business should know:
A chattel mortgage can provide a relatively clear structure because the business owns the equipment from settlement and repays the commercial loan over time.
Established businesses may have more flexibility around:
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.
No.
The interest rate is important, but it should be considered as part of the complete structure.
For example:
Lower rate
Large deposit
Short term
High repayment
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.
Different lenders have different policies for:
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.
TAFS reviews:
TAFS can assess:
TAFS can compare different combinations of:
Different lenders may produce different:
TAFS can compare suitable options through its lender panel.
The business can then consider the repayment alongside:
Once a suitable lender and structure are selected, the application can move through approval and settlement.
Before committing to chattel mortgage, hire purchase or rent to own, ask:
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.
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.
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.
Not necessarily.
Compare the total amount paid, regular payments, agreement term, final payment and ownership position rather than the advertised rental amount alone.
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.
Yes.
Eligible commercial vehicles, machinery and business equipment can potentially be financed with a chattel mortgage.
Yes, subject to lender approval.
Potentially.
Selected lenders can consider newer businesses based on the complete application.
Yes.
Selected lenders provide finance for eligible used commercial equipment.
Yes, through selected lenders.
Additional seller and asset checks may apply.
Potentially.
A balloon reduces regular repayments by leaving part of the principal outstanding at the end of the finance term.
Not always.
Deposit requirements depend on the business, asset and lender.
Potentially.
Available equity in existing equipment may contribute toward a replacement purchase.
Eligible business-use interest may potentially be deductible depending on the circumstances.
Your accountant should confirm the treatment applying to your business.
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.
TAFS primarily focuses on chattel mortgage finance rather than rent-to-own equipment structures.
TAFS has access to more than 80 bank and non-bank lenders.
Compare:
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.