Both let you use equipment without paying for it all at once. The differences sit in who owns the asset, how GST and tax are handled, and what happens at the end.
| Feature | Chattel mortgage | Finance lease |
|---|---|---|
| Ownership | You own the asset from the start | Lender owns it during the term |
| Security | Lender takes a mortgage over the asset | Lender is the owner |
| Balloon / residual | Optional balloon payment at the end | Residual value set at the start |
| End of term | Pay the balloon, refinance or sell | Return, extend or buy at residual |
| GST and tax | Treatment varies, so confirm with your accountant | Treatment varies, so confirm with your accountant |
| Best suited to | Assets you intend to keep | Assets you expect to upgrade |
Chattel mortgage
The business buys the equipment and borrows against it. Once the loan is repaid, the lender releases its interest. Because you are the owner, you may be able to claim certain deductions on interest and depreciation, subject to your own circumstances. A balloon can reduce repayments but needs a plan at the end.
Finance lease
The lender buys the asset and you pay to use it. At the end you generally return it, extend, or purchase it for an agreed residual. This can suit equipment that goes out of date, such as computers or imaging devices, because you are not left holding something obsolete.
How to choose
- Do you want to own the asset long-term? Lean towards a chattel mortgage.
- Will you upgrade in a few years? A lease may keep that simple.
- Can you cover a balloon or residual at the end?
- What does your accountant say about the tax and GST position?
For a wider introduction, start with equipment finance explained.