Chattel Mortgage Explained: The Most Common Way Businesses Buy Vehicles and Equipment
A chattel mortgage is a business loan to buy a vehicle or piece of equipment. “Chattel” is an old word for movable property. Your business owns the asset from the start, and the lender holds a mortgage over it until the loan is repaid.
It is the most popular way Australian businesses finance cars, utes, trucks and machinery, mainly because of how ownership and GST work.
How it works
- You choose the vehicle or equipment
- The lender pays the seller, and your business takes ownership
- The lender registers its interest in the asset as security
- You make regular repayments, with or without a balloon at the end
- Once repaid, the lender’s interest is removed
The key difference from hire purchase is ownership. With a chattel mortgage, you own the asset from day one. With hire purchase, the financier keeps ownership until the final payment.
GST: claim it upfront
Because your business buys the asset outright with the borrowed money, a GST-registered business can generally claim the full GST credit on the purchase price in its next BAS, rather than spreading it over the loan. That can give a useful cash flow boost early on.
The ATO explains the timing in its GST, hire purchase and leasing guide. Special limits apply to the GST you can claim on expensive cars, so check with your accountant.
Other possible tax benefits
- Interest and depreciation on the business-use portion may be deductible
- Eligible assets under $20,000 may qualify for the instant asset write-off for small businesses
- For passenger cars, depreciation is capped at the car limit, which the ATO has set at $69,883 for 2026-27
Utes and vans built mainly to carry goods (a payload of one tonne or more) are generally not subject to the car limit. Rules and limits change, so confirm with your accountant before you buy.
Balloon payments
A balloon (or residual) is a lump sum due at the end of the loan. It lowers your regular repayments, which helps cash flow. But it means you still owe money at the end. Plan to pay it, refinance it or trade in the asset. A balloon that’s too big can leave you owing more than the asset is worth.
Chattel mortgage vs other options
| Chattel mortgage | Finance lease | Novated lease | |
|---|---|---|---|
| Who owns it | Your business | The lender | The lender |
| Who it suits | Businesses | Businesses | Employees |
| GST | Claimed upfront on purchase price | Claimed on each payment | Handled through payroll |
| End of term | You own it outright | Option to buy at residual | Pay residual, refinance or return |
Not sure which suits you? See novated lease vs car loan or go back to asset finance.
Is it right for you?
A chattel mortgage usually suits businesses that use the asset mostly for work, want to own it, and are registered for GST. If the vehicle is mainly for private use, a consumer car loan or novated lease may suit better.
FAQs
Do I need a deposit?
Often not, for established businesses with good credit. Newer businesses may need one.
Can I pay it off early?
Usually, but some lenders charge early payout fees or don’t reduce interest for early payment. Check before you sign.
Can a sole trader use a chattel mortgage?
Yes, as long as the asset is used mainly for business and you have an ABN.
Albert Waldron is a Credit Representative (407514) of Australian Finance Group Ltd, Australian Credit Licence 389087. This is general information only and does not take into account your personal circumstances. Please seek advice before acting. Finance is subject to lender approval, terms and conditions. Tax information is general only; speak to your accountant about your situation.