Chattel Mortgage vs Hire Purchase: Which Is Right for Your Business?

Quick Comparison: Chattel Mortgage vs Hire Purchase

Feature	Chattel Mortgage	Hire Purchase
Ownership	You own from day one	Finance company owns until final payment
GST Claim	Claim full GST upfront	Claim GST on each payment
Best For	GST-registered businesses	Non-GST registered or personal use
Balloon Payment	Optional	Optional
On Balance Sheet	Yes (asset + liability)	Sometimes off-balance sheet

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Key Takeaways

• Chattel mortgage gives immediate ownership and lets you claim the full GST upfront—ideal for GST-registered ABN holders.
• Hire purchase spreads GST claims across the loan term and works well for businesses not registered for GST.
• Both options allow you to claim interest and depreciation as tax deductions.
• Your accountant's advice matters more than any online guide—your specific situation determines the best choice.

What Is a Chattel Mortgage?

A chattel mortgage is a loan secured against a vehicle (the "chattel") that you own from day one. The finance company places a mortgage over the vehicle as security, but it's registered in your name from the start.

How It Works

1. You choose the vehicle
2. The lender pays the seller directly
3. The vehicle is registered in your name
4. The lender places a mortgage (security interest) over the vehicle
5. You make regular repayments over 1-7 years
6. Once paid off, the mortgage is removed

Tax Benefits of Chattel Mortgage

For GST-registered businesses, chattel mortgage offers significant advantages:

• Full GST claim upfront: Claim the entire GST component on your next BAS
• Interest deductions: Claim all interest payments as a business expense
• Depreciation: Claim depreciation on the vehicle's value
• Running costs: All vehicle expenses are deductible (proportional to business use)

Example: On a $55,000 vehicle (inc GST), you could claim ~$5,000 GST on your next BAS. That's immediate cash flow back into your business.

What Is Hire Purchase?

Hire purchase means you're effectively hiring the vehicle while paying it off. The finance company owns the vehicle, and ownership transfers to you only after the final payment.

How It Works

1. You choose the vehicle
2. The finance company purchases and owns the vehicle
3. You "hire" the vehicle while making payments
4. Ownership transfers to you after the final payment
5. The vehicle is then registered in your name (or a nominal transfer fee applies)

Tax Benefits of Hire Purchase

Hire purchase spreads tax benefits differently:

• GST claimed progressively: Claim GST on each monthly payment
• Interest deductions: Claim interest component of each payment
• Depreciation: Still available (even though you don't technically "own" it yet)
• Running costs: Deductible proportional to business use

Best for: Businesses not registered for GST, or those who prefer spreading GST claims across the loan term.

Which Should You Choose?

Choose Chattel Mortgage If:

• You're GST-registered and want to claim the full GST upfront
• You want the vehicle in your name from day one
• You prefer having the asset on your balance sheet
• Cash flow can handle the GST refund timing (BAS quarterly or monthly)

Choose Hire Purchase If:

• You're not GST-registered (turnover under $75,000)
• You prefer spreading GST claims over the loan term
• You want potential off-balance sheet treatment (check with your accountant)
• You're comfortable with ownership transferring at the end

Real-World Scenarios

Scenario 1: Brisbane Tradie with GST Registration

Sarah runs a plumbing business in Brisbane, turning over $400,000/year. She's buying a $66,000 ute (inc GST).

Best option: Chattel Mortgage

• Claims $6,000 GST on her next BAS
• Immediate ownership (important for business branding/signage)
• Can claim depreciation and interest from day one
• Fits neatly on her balance sheet for business valuation

Scenario 2: New Electrician Under GST Threshold

Tom just started his electrical business on the Gold Coast, turning over $60,000/year. He's buying a $44,000 van (inc GST).

Best option: Hire Purchase

• Not GST-registered, so can't claim GST anyway
• Spreads payments evenly over the term
• Ownership transfers once he's more established
• Simpler accounting for a new business

Scenario 3: Established Company Fleet

A construction company in Ipswich is adding 3 vehicles to their fleet, total value $180,000.

Best option: Chattel Mortgage

• Claim $16,364 GST upfront across the fleet
• All vehicles registered to company immediately
• Fleet management simpler with direct ownership
• Better for business valuation and potential sale

The Balloon Payment Question

Both chattel mortgage and hire purchase can include a balloon (residual) payment—a larger final payment that reduces your monthly repayments.

Pros of a balloon:

• Lower monthly repayments
• More cash flow during the loan term
• Can sell/trade the vehicle before balloon is due

Cons of a balloon:

• Larger lump sum at the end
• May owe more than the vehicle is worth
• Need to plan for refinancing or cash payment

Our recommendation: Keep balloon payments under 30% of the purchase price for vehicles you plan to keep.

Common Mistakes to Avoid

1. Choosing Based on Monthly Payments Alone

Lower monthly payments (via balloon) might cost you more in total interest. Always compare the total cost of the loan.

2. Not Consulting Your Accountant

Tax implications are specific to your situation. What works for your mate's business might not work for yours.

3. Forgetting About FBT

If the vehicle is available for private use, Fringe Benefits Tax (FBT) applies regardless of finance type. Factor this into your decision.

4. Ignoring the Exit Strategy

What happens if you sell the business? Chattel mortgage vehicles are yours to sell. Hire purchase vehicles need finance company approval for early termination.

How to Apply for Business Car Finance

Getting approved for either option follows a similar process:

1. Determine your budget and vehicle requirements
2. Gather documents: ABN, financials (2 years ideally), driver's licence
3. Get pre-approval to know your borrowing capacity
4. Find the vehicle with confidence
5. Finalise finance and drive away

Frequently Asked Questions

Can I claim 100% of the vehicle if I use it for personal trips too?

No. You can only claim the business-use percentage. If you use the vehicle 80% for business, you claim 80% of expenses. Keep a logbook for the first 12 weeks to establish your business use percentage.

What happens if my business closes during the loan?

With chattel mortgage, you personally own the vehicle and remain liable for repayments. With hire purchase, you don't own it until final payment—but you're still liable for the contract.

Can I refinance a hire purchase to chattel mortgage?

Technically possible but rarely worthwhile. The costs and paperwork usually outweigh any benefits. Better to choose correctly from the start.

Which has better interest rates?

Rates are typically similar. The difference comes down to tax treatment, not interest costs. Compare total cost of ownership, not just the rate.

Do I need a deposit?

Not always. Many lenders offer 100% finance for established businesses. However, a deposit (even 10-20%) often gets you a better rate and lower repayments.

Next Steps

Ready to explore your options? Here's how we can help:

• Business car finance options – ABN holders, chattel mortgage & hire purchase
• Car finance overview – Compare all your options
• Get in touch – Free consultation with no obligation

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This guide is general information only. Tax and finance laws are complex and change regularly. Always consult your accountant or financial advisor before making business finance decisions.