Asset finance
Lease or buy equipment?
Key takeaways
- The cheaper option depends on the residual (end-of-term amount) as much as the headline rate.
- Finance leases typically carry lower repayments, with a residual (balloon) payment due at the end.
- Chattel mortgages (a loan secured over the equipment itself) and equipment loans mean ownership from day one, and the GST input credit upfront for the business-use share.
- Operating leases may keep the asset off your balance sheet, depending on how you report (see AASB 16).
Four Ways to Fund Business Equipment
Every equipment finance decision comes down to one of four structures. They differ in who owns the asset, when GST is claimed, and what - if anything - is owed at the end of the term.
Outright purchase means paying cash from working capital or a general business loan. No lender, no security over the asset (nothing for a lender to claim), but it ties up cash that could otherwise fund growth. Chattel mortgage is the most common structure for owner-operators: the lender funds the purchase, you own the asset from settlement, and the loan is secured by a mortgage over the equipment itself rather than a lease. Finance lease flips that: the financier legally owns the asset for the term, you make the repayments, and a residual value (commonly around 10 to 20% of the purchase price) falls due at the end - which you then pay out, refinance, or return. Operating lease is closer to a long-term rental: you never own the asset, repayments are typically lower, and the equipment (and its depreciation risk) sits with the lessor.
| Structure | Ownership | Balance Sheet | GST Treatment | Typical Term | Best For |
|---|---|---|---|---|---|
| Outright Purchase | Immediate | Asset recorded, no liability | Full input credit on purchase | N/A | Cash-rich businesses avoiding finance cost entirely |
| Chattel Mortgage | Immediate | Asset + loan liability recorded | Full input credit upfront | 2 to 5 years | Owner-operators who want the asset on their books from day one |
| Finance Lease | At end, if residual is paid | Asset + liability recorded (finance lease) | Credit claimed on each rental, not upfront | 2 to 5 years | Lower repayments now, in exchange for a balloon later |
| Operating Lease | Never (unless a purchase option is exercised) | May sit off balance sheet (see AASB 16) | Credit claimed on each rental payment | 1 to 4 years | Equipment that dates quickly, or businesses wanting no residual risk |
Tax & PPSR Impact
The structure you choose changes what you can claim, when you can claim it, and what's registered against the asset. None of the below is tax advice - confirm your specific position with your accountant before committing to a structure.
- Depreciation & Instant Asset Write-Off
- Outright purchase and chattel mortgage bring the asset onto your books immediately, which can make it eligible for depreciation claims, or an instant asset write-off within the ATO’s current thresholds. With a lease, the rental payments are usually the deductible expense instead. Check the treatment for your business with your accountant.
- GST Input Credit Timing
- Outright purchase and chattel mortgage let you claim the GST credit on your next BAS after settlement, for the business-use share (for cars, capped by the ATO’s car limit). Finance and operating leases spread the credit across each rental payment over the life of the term instead of one upfront claim.
- PPSR Registration
- Whichever lender finances the asset - chattel mortgage or finance lease - registers a security interest on the Personal Property Securities Register. This protects the lender's claim over the asset and is a standard, expected step; it doesn't affect your ability to use or operate the equipment.
- End-of-Term Residual/Balloon
- Finance leases and some chattel mortgages are written with a residual (balloon) amount due at the end of the term. You can pay it out in cash, refinance it into a new facility, or in a finance lease's case, return the asset instead. Factor this into cash flow planning well before the term ends.
Not sure which structure fits your business?
See My OptionsCompare your numbers: Finance Lease vs. Equipment Loan
Adjust the equipment cost, indicative rates, and term to see which structure costs less over the life of the finance.
Estimated Cost Comparison
The same comparison has a page of its own: the equipment finance calculator.
Rate Benchmarks by Lender Tier (2026)
Equipment finance rates vary by lender tier and asset type - newer, more liquid assets (trucks, late-model excavators) attract sharper pricing than specialised or older equipment.
| Lender Tier | Rate Range (p.a.) |
|---|---|
| Major Banks | 7% to 9.5% |
| Second-Tier Banks | 8% to 11% |
| Specialist Asset Finance Lenders | 7.5% to 13% |
| Fintech Lenders | 9% to 15% |
Indicative market ranges, not quotes. Your Compare Report shows the options you qualify for across our panel.
Evaluating Equipment Finance on Security, Term, Amount and Rate
- Security
- The equipment itself is the security under both a chattel mortgage and a finance lease - no additional property or asset backing required in most cases.
- Term
- Typically matched to the asset's useful life - 2 to 5 years for most equipment, shorter for fast-depreciating technology.
- Amount
- Financed against the invoice or valuation of the asset, from $5,000 for light equipment to $2M+ for heavy plant and machinery.
- Rate
- Full transparency on rate, residual structure, and total cost, beyond the headline monthly repayment figure.
Chattel Mortgage vs. Finance Lease: The Core Decision
CHATTEL MORTGAGE / LOAN
- Own the asset from day one, no residual owing
- GST input credit claimed upfront
- May be eligible for depreciation and instant asset write-off
- Higher monthly repayment than an equivalent lease
FINANCE LEASE
- Lower monthly repayment for the same asset
- Frees up cash flow during the term
- Residual/balloon payment due at end of term
- GST credit spread over the term, not claimed upfront
Frequently Asked Questions
What happens to the residual at the end of a finance lease?
You have three common options: pay it out in cash and keep the asset, refinance the residual into a new facility, or return the asset to the financier (less common for equipment already in productive use). Most businesses either pay it out or roll it into a new lease on updated equipment.
Can I claim GST back immediately on a chattel mortgage?
Generally yes - because you take ownership of the asset at settlement, the GST input credit on the purchase price is typically claimable on your next BAS, for the business-use share (for cars, capped by the ATO’s car limit). This is a general observation, not tax advice; confirm your specific eligibility with your accountant.
Is an operating lease the same as renting?
Functionally, yes - it's structured as a long-term rental. You never own the asset, repayments are usually lower than a finance lease or loan, and the equipment remains the lessor’s asset, not yours.
Which option is better for tax at end of financial year?
It depends on your position. Outright purchase and chattel mortgage can bring depreciation and instant asset write-off eligibility (within the ATO’s current thresholds) into the year of purchase, which can suit a business wanting to reduce taxable income now. Leases spread the deduction across the term instead. Speak to your accountant before deciding based on timing alone.
Can I pay out a finance lease early?
Most lenders allow early payout, calculated as the remaining rentals plus the residual, sometimes with a small early termination adjustment. Terms vary by lender - confirm the payout formula before signing if early exit is a possibility.
What's PPSR and why does it matter here?
The Personal Property Securities Register is where lenders register their security interest over financed assets, including equipment under a chattel mortgage or finance lease. It protects the lender's claim if a business becomes insolvent, and it's a routine, expected part of any secured equipment finance settlement.
Does the calculator on this page account for GST?
No - the calculator above compares pre-GST financing cost only (equipment cost, rate, and term). GST timing differs between structures, as covered in the Tax & PPSR section above, and should be factored in separately with your accountant.
Is a finance lease or chattel mortgage better for a growing fleet?
Businesses adding equipment regularly often prefer finance leases for the lower monthly commitment, refinancing residuals into newer models as the fleet turns over. Businesses planning to hold equipment long-term past the finance term more often choose a chattel mortgage to avoid a residual obligation on an asset they intend to keep indefinitely.
How we’re paid
You don’t pay to compare. Lenders pay us.
How do we get paid?
Comparing costs you nothing. Not comparing can cost you plenty.
The headline rate rarely tells the whole story. Fees, charges and loan terms can add far more to what you repay. That’s why your Compare Report shows every cost we can identify side by side.
In most cases, the lender pays us, and only if you decide to proceed with their product offer. For more complex deals, or where the lender pays us little or nothing, we may charge a fee for our service. It doesn’t happen often, but when it does, it’s shown on your Compare Report and we’ll walk you through it before you decide.
No obligation to proceed, ever.
See the equipment finance options that fit your business.
No credit file impact · No cost to compare · No obligation
Or talk to us: 1300 161 641 · support@tradefunding.com.au