For Australian businesses needing to acquire vehicles or equipment, financing options can seem overwhelming. One product specifically designed for business asset purchases is the chattel mortgage – a popular choice offering unique advantages for business owners, self-employed individuals, and companies with an Australian Business Number (ABN).
According to market data, vehicle purchases for business purposes continue to grow, with hundreds of thousands of Australians involved in business vehicle financing annually. Understanding how chattel mortgages work, their benefits and limitations, and whether they suit your circumstances helps you make informed financing decisions.
This guide explains everything you need to know about chattel mortgages in Australia, including how they work, eligibility requirements, tax benefits, costs, and comparisons with alternative financing options.
A chattel mortgage is a business loan used to purchase movable assets, where the asset itself serves as security for the loan.
“Chattel” refers to movable personal property, as distinct from real property (land and buildings). Common chattels include:
How It Works:
Unlike leases where the lessor owns the asset, with a chattel mortgage you take ownership immediately. The lender simply holds a mortgage (security interest) over the asset, similar to how a bank holds security over a house in a home mortgage.
Step 1: Asset Selection You identify the vehicle or equipment your business needs.
Step 2: Loan Application Apply to a lender for a chattel mortgage, providing:
Step 3: Approval and Purchase Once approved:
Step 4: Repayment Make regular repayments according to agreed schedule:
Step 5: Completion Once loan fully repaid:
Chattel Mortgage vs Finance Lease:
Chattel Mortgage vs Hire Purchase:
Chattel Mortgage vs Operating Lease:
Primary Users:
Asset Use Requirement: The asset must be used for business purposes at least 51% of the time. This is a fundamental requirement distinguishing chattel mortgages from consumer finance products.
Business Use Examples:
Ideal Scenarios:
Less Suitable When:
You own the asset from day one, giving you:
Because the loan is secured by the asset, interest rates are typically lower than unsecured business loans.
Typical Rates:
Many lenders offer finance for the full purchase price, meaning:
Example: Vehicle purchase price: $50,000 On-road costs: $3,000 Total financed: $53,000 (100% financing)
Loan Terms: Typically range from 1 to 7 years:
Payment Frequency: Choose payment schedules that suit your cash flow:
Balloon Payments: Option to include a balloon (residual) payment at the end, reducing regular repayments but requiring a lump sum at maturity.
Three Main Tax Advantages:
GST Input Tax Credit: For GST-registered businesses, you can claim the GST paid on the asset purchase price as an input tax credit on your next Business Activity Statement (BAS). This provides immediate cash flow benefit.
Example: Purchase price: $55,000 (including $5,000 GST) Claim $5,000 GST credit on next BAS Effective cost: $50,000
Depreciation Deductions: Claim depreciation on the asset as a tax deduction. The depreciation rate depends on the asset type and whether you use:
Interest Deductions: Interest payments on the chattel mortgage are tax-deductible expenses, reducing your taxable income.
Example: Annual interest: $3,000 Tax rate: 30% (company tax rate) Tax saving: $900
Important: Tax benefits depend on the percentage of business use. If an asset is used 100% for business, you can claim 100% of deductions. If used 80% for business, you can claim 80% of deductions.
Many chattel mortgages offer fixed interest rates, providing:
51% Minimum: The asset must be used at least 51% for business purposes. This means:
Unlike some lease products where the lessor may cover certain costs, with a chattel mortgage you’re responsible for:
Compared to Leases: Leases allow easy upgrades at lease end – simply return the asset and lease a new one.
With chattel mortgages:
Exemption from NCCP: Chattel mortgages are business loans exempt from the National Consumer Credit Protection Act (NCCP). This means:
Implication: You must carefully assess affordability yourself. Don’t rely on lender approval as confirmation you can afford the loan.
As owner, you bear the full risk of asset depreciation:
A balloon payment is a large, one-time payment due at the end of the chattel mortgage term. It’s called a “balloon” because it’s substantially larger than the regular repayments made throughout the loan.
Structure: Instead of repaying the full loan amount across regular payments, you:
ATO Guidelines: The Australian Taxation Office sets maximum residual values (balloon payments) for tax purposes. These percentages of the original purchase price are:
Example: $50,000 chattel mortgage at 8% p.a. over 5 years:
Without balloon:
With 30% ($15,000) balloon:
Result: Monthly saving of $253, but $2,820 more interest paid overall.
Improved Cash Flow: Lower regular repayments free up cash for:
Suitable For:
Higher Total Cost: More interest paid over loan life.
Large Payment Due: Must pay substantial lump sum at maturity:
Options at Balloon Payment:
1. Australian Business Number (ABN): Must have a valid ABN – this is fundamental to chattel mortgage eligibility.
2. Business Use: Asset must be used at least 51% for business purposes.
3. Financial Position: Demonstrate ability to afford repayments through:
4. Credit History: Acceptable business and personal credit history:
5. Deposit (Sometimes): Some lenders require a deposit:
Business Information:
Personal Information:
Asset Information:
Factors Affecting Your Rate:
Credit History:
Asset Type and Age:
Loan Amount and Term:
Business Financial Position:
Establishment Fee: Upfront cost to set up the loan: $300-$900 typically.
Monthly Account Fee: Ongoing administration: $10-$20 per month.
Early Repayment Fee: Penalty for paying out early (especially fixed-rate loans): $200-$1,000+ potentially.
Discharge Fee: Administrative cost when loan finalised: $100-$400.
Other Potential Fees:
Always check the comparison rate, which includes:
For GST-Registered Businesses: Claim the GST included in the purchase price as an input tax credit on your next Business Activity Statement.
Example: Vehicle purchase: $55,000 (including $5,000 GST) Loan amount: $55,000 GST claimed on next BAS: $5,000 Net cost: $50,000 (plus interest over time)
Timing: Claim the full GST input tax credit immediately (next BAS), even though you’re paying the loan over several years.
Annual Deductions: Claim depreciation on the asset each year based on:
Instant Asset Write-Off: Eligible businesses may be able to claim immediate deductions for assets under certain thresholds (check current ATO rules, as thresholds and eligibility change).
Tax-Deductible: Interest payments are deductible business expenses, reducing taxable income.
Calculation: Interest deduction = Interest paid × Business use percentage
Example: Annual interest: $4,000 Business use: 80% Deductible amount: $3,200
Seek Professional Advice: Tax implications vary based on:
Always consult a qualified accountant or tax adviser about your specific situation.
After 1+ Years: Once you’ve held the chattel mortgage for over a year, refinancing might be worthwhile if:
Refinancing Balloon Payments: At loan maturity, if you cannot pay the balloon, you can:
Costs:
Calculation: Ensure interest savings exceed refinancing costs over remaining term.
Credit History: Most important factor:
Business Financial Health:
Asset Details:
Loan Structure:
Before Applying:
Compare lenders considering:
Prepare required documents:
Submit application to chosen lender:
Lender assesses:
If approved:
Timeline:
If There’s a Balloon Payment:
Option 1: Pay in Cash Pay the balloon amount outright and own the asset with clear title.
Option 2: Refinance the Balloon Take out a new loan for the balloon amount, extending the repayment term.
Option 3: Sell or Trade the Asset Use sale proceeds to pay the balloon, potentially upgrading to newer asset with new chattel mortgage.
Option 4: Return to Lender Some arrangements allow returning the asset to lender in lieu of balloon payment (though less common with chattel mortgages).
Clear Title: Lender discharges their security interest from PPSR, and you own the asset outright with no encumbrances.
What Next:
Choose a Chattel Mortgage When:
Consider Alternatives When:
Chattel Mortgage vs Novated Lease:
Chattel Mortgage vs Finance Lease:
Chattel Mortgage vs Unsecured Business Loan:
Chattel mortgages offer Australian businesses an effective way to finance vehicles and equipment, combining immediate ownership with competitive rates and significant tax benefits. For businesses with an ABN using assets primarily for business purposes, chattel mortgages provide advantages including GST input tax credit claims, depreciation deductions, and interest deductibility.
However, chattel mortgages involve obligations and considerations: you’re responsible for all operating costs, bear depreciation risk, and must ensure the asset meets the 51% business use requirement. The exemption from consumer credit protections means you must carefully assess affordability independently.
Before committing to a chattel mortgage, thoroughly compare options, calculate total costs including interest and fees, evaluate your business’s capacity to afford repayments (including balloon payments if applicable), and consider whether immediate ownership aligns with your business strategy. Don’t hesitate to seek professional advice from accountants or financial advisers about whether a chattel mortgage suits your specific circumstances and how to structure it optimally for tax purposes.
By understanding how chattel mortgages work, their benefits and limitations, and your obligations as a borrower, you can make informed financing decisions that support your business operations and growth whilst managing costs effectively.
This guide provides general information about chattel mortgages in Australia for educational purposes only. It is not financial, legal, or tax advice and does not consider your specific circumstances, objectives, or needs.
Before taking out any chattel mortgage:
Tax laws, benefits, and treatment change regularly. Information about tax deductions, GST credits, and depreciation is current as of November 2025 but may become outdated. Always verify current tax treatment with the Australian Taxation Office (ATO) and consult a qualified tax professional.
Chattel mortgage terms, interest rates, fees, eligibility requirements, and regulations vary between lenders and change over time. Always verify current information directly with lenders before making commitments.
All examples are illustrative only and may not reflect actual costs, rates, terms, tax outcomes, or benefits. Actual loan costs, approval requirements, interest rates, terms, and tax benefits vary based on numerous factors including your business structure, financial position, credit history, asset type, the lender, loan amount, and many other considerations.
