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Chattel Mortgage vs Finance Lease: Which Is Better?

These are the two most popular asset finance structures in Australia. The best choice depends on your GST registration, whether you want to own the asset, and how you prefer to manage tax deductions.

Side-by-Side Comparison

FeatureChattel MortgageFinance Lease
OwnershipYou from day 1Financier during term; you pay residual at end
GSTClaim 100% upfront on next BASClaim on each monthly payment
DepreciationYes — you claim as ownerNo — financier claims
Interest / PaymentInterest is deductibleEntire lease payment is deductible
Instant Asset Write-OffYes (eligible as owner)No
Balloon / ResidualOptional (0–50%)Mandatory (ATO minimums)
Balance SheetOn-balance sheetPotentially off-balance sheet
End of TermOwn outright (or pay balloon)Pay residual, refinance, or trade
Monthly PaymentHigher (if no balloon) or matched (with balloon)Lower (mandatory residual reduces payments)
ComplexityMedium — track depreciation + interestLow — one deductible payment

See the Difference in Real Numbers

Enter your asset price and our calculator shows chattel mortgage vs finance lease repayments and tax deductions side by side.

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When to Choose a Chattel Mortgage

  • You're GST-registered: The upfront GST credit is a major advantage — cash back in your pocket within weeks via your BAS.
  • You want depreciation claims: Especially powerful when combined with the instant asset write-off for eligible assets.
  • You want to own the asset long-term: Trucks, earthmoving equipment, and farm machinery you'll use for 7-15 years.
  • You want flexibility on balloon: A chattel mortgage lets you choose 0-50% balloon. No balloon = you own it outright at end. High balloon = lower weekly payments.
  • You want to build equity: Each payment reduces the principal, building your equity in the asset.

Read the full Chattel Mortgage guide →

When to Choose a Finance Lease

  • You're NOT GST-registered: The upfront GST credit doesn't apply to you, so the chattel mortgage advantage diminishes.
  • You want simpler tax treatment: One deductible figure per payment period — no separate interest and depreciation tracking.
  • You want lower regular payments: The mandatory residual means less principal to amortise, reducing your weekly/monthly outgoing.
  • You may upgrade mid-term: At the end, you can choose to refinance, trade, or return the asset — more flexibility if your needs change.
  • You prefer off-balance-sheet treatment: A finance lease may be off your balance sheet (check AASB 16 applicability).

Read the full Finance Lease guide →

Worked Example: $100,000 Asset

A Sydney business finances a $100,000 (ex-GST) asset over 5 years at 6.5%:

MetricChattel Mortgage (20% Balloon)Finance Lease (20% Residual)
GST Credit$10,000 upfront~$167/month on BAS
Monthly Payment~$1,712 (ex-GST)~$1,879 (inc. GST)
Yr 1 Interest Deduction~$6,200N/A (payment is deduction)
Yr 1 Depreciation~$12,500N/A
Total Yr 1 Deduction~$18,700 + payments~$20,300 (lease payments)
End-of-Term Payment$20,000 balloon$20,000 + GST residual

Illustrative only — actual figures depend on lender, term, and rate. Use our calculator for personalised estimates.

Quick Decision Guide

Your SituationRecommended Structure
GST-registered, keeping asset 5+ yearsChattel Mortgage
GST-registered, want instant asset write-offChattel Mortgage
Not GST-registeredFinance Lease
Want simplest tax treatmentFinance Lease
Want lowest weekly paymentFinance Lease (due to mandatory residual)
Want to build equity in the assetChattel Mortgage (no/low balloon)
Prefer off-balance sheetFinance Lease
Unsure — want flexibilityChattel Mortgage with optional balloon

Still Not Sure?

Run both structures through our calculator and see the exact difference in repayments and tax savings — takes 30 seconds.

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FAQs

Which has lower total cost over the life of the agreement?▼
Generally, chattel mortgage has a lower total cost because you claim depreciation and GST upfront, plus interest deductions. Finance lease payments are fully deductible but the total outlay is typically slightly higher. However, the "real" cost depends on your marginal tax rate and GST position — our calculator models both scenarios.
Can I switch from one structure to the other?▼
Not mid-agreement. Once you sign, the structure is locked in for the term. When it's time to finance your next asset, you can choose whichever structure suits your situation at that time.
What about an operating lease?▼
An operating lease is a third option where you return the asset at the end — no residual to pay. It's essentially a rental. Less common but useful for short-term fleet vehicles or technology. Read the Operating Lease guide or compare it with a finance lease.
Do both structures require an ABN?▼
Yes — both chattel mortgage and finance lease are business finance products. You need an active ABN and a business purpose for the asset.

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