Chattel Mortgage vs Equipment Lease Costs

Key highlights

• Chattel mortgage gives ownership plus depreciation and interest claims
• A lease finances use, with rentals often deductible
• GST is handled differently between the two structures
• Compare after-tax total cost, not just monthly repayments

What a chattel mortgage costs

Under a chattel mortgage, you buy and own the asset while the lender takes a mortgage over it as security. You repay principal and interest, often with a balloon at the end to lower monthly repayments. On the cost side, you can generally claim depreciation on the asset and the interest portion of your repayments, and the GST on the purchase price is typically claimable upfront in your next activity statement. This ownership structure tends to suit businesses that keep assets long term and want to build equity in their equipment.

What an equipment lease costs

With an equipment lease, the financier owns the asset and you pay rentals to use it over the term, usually with a residual value payable or refinanceable at the end. The rentals are generally treated as a deductible operating expense rather than you claiming depreciation and interest separately, and GST is typically applied to each rental rather than the full purchase price upfront. This can smooth cash flow and simplify accounting, and it often suits businesses that prefer to finance use and upgrade equipment regularly rather than own it outright.

The tax difference in practice

The core cost distinction is how each is treated for tax. A chattel mortgage lets you claim depreciation and interest, which can be advantageous if the asset depreciates quickly or you want deductions tied to ownership. A lease converts the cost into deductible rental payments spread over the term. The GST timing also differs, upfront on a chattel mortgage purchase versus on each lease rental. Which delivers the lower after-tax cost genuinely depends on your business, so treat this as general information and check with your accountant before deciding, since the most tax-effective structure for one business can be the wrong one for another.

The balloon and residual effect

Both structures commonly involve a lump sum at the end, a balloon on a chattel mortgage or a residual on a lease, and this heavily influences cost. A larger balloon or residual lowers your monthly repayments but increases the total interest paid and leaves a sizeable amount owing when the term finishes. When comparing the two, you must include this end payment, not just the monthly figure. A low monthly cost with a big balloon can end up dearer overall than a higher repayment with a smaller final amount. Deciding how large a balloon or residual to set is therefore a key part of controlling the true cost of either structure.

Comparing the real cost

To know which structure costs less, compare the total amount paid over the term plus any balloon or residual, then overlay the after-tax position for your business. Repayments alone are misleading. Each lender prices chattel mortgages and leases differently and has its own appetite, so the sharpest option is not always obvious. Overdrive takes one application and compares 80+ banks and non-bank lenders across both structures, presented on total cost, so you can see the real difference for your specific asset and deal. Seeing them side by side takes the guesswork out of a choice that has a genuine impact on what you pay.

Choosing between a chattel mortgage and a lease is as much about tax and ownership goals as it is about the rate, so it pays to see real figures alongside proper advice. Send Overdrive your asset and business details for an indicative, no-obligation comparison across 80+ lenders and both structures, laid out on total cost. Combine that with a quick check with your accountant on the tax treatment, and you can choose the structure that genuinely costs your business the least.