You have found the machine. A skid steer, a compactor, a workshop lathe, a reach truck for the new shed. The dealer wants a decision and your accountant has asked one question you cannot yet answer: are you buying it or leasing it? Because on paper those two paths look similar, both spread the cost across a term and both put the gear to work straight away, operators often treat the choice as a coin toss. It is not. A finance lease and a chattel mortgage sit differently on your books, hand you the asset differently at the end, and reward different kinds of businesses.
This page runs the two products side by side for equipment. It covers who owns what, how the balance sheet and GST questions get answered (by your accountant, not by a web page), how each handles upgrades, what happens when the term ends, and which structure tends to suit which type of operator. Where a number would matter to your decision, we point you to who holds the real figure.
The core difference: who owns the equipment
Start with ownership, because everything else follows from it.
Under a chattel mortgage, you own the equipment from day one. The lender advances the money, you buy the machine in your business name, and the lender registers a security interest over it until you have paid out the contract. The asset is yours, sitting on your books, and the lender holds a claim against it in case you default. When the last payment clears, the security interest is released and the machine is unencumbered.
Under a finance lease, the lender (the lessor) owns the equipment and you (the lessee) pay to use it across the term. You get full operational use, you carry the running costs and the maintenance, but legal title stays with the financier until you deal with the residual at the end. A finance lease is renting to own in all but name, and we walk through the mechanics in detail in our guide to how a finance lease works.
That single distinction, whose name is on the asset, drives the accounting treatment, the end of term options and the way each product feels to run.
Balance sheet and GST: a question for your accountant
This is where operators most want a firm answer and where a general page must stop short, because the treatment depends on your structure, your registration and rules that change.
Broadly, a chattel mortgage puts the asset on your balance sheet because you own it, and the financing sits alongside as a liability. A finance lease is treated differently again, and the way lease commitments appear has shifted under accounting standards in recent years. The GST position also differs between the two, particularly around when input tax credits can be claimed and how GST applies to the payments versus the purchase. Depreciation, instant write-off eligibility and how interest or lease charges are deducted all turn on current tax rules and on facts specific to your business.
None of that can be answered responsibly in the abstract, and the thresholds move. Take the actual structure to a registered tax agent, or check the current position with the Australian Taxation Office. The ATO's business section is the authority on depreciation, GST and write-off rules. Your accountant will often have a clear view on which structure suits your entity before you even talk to a financier, and that view is worth getting first.
End of term: where the two paths split
The end of the contract is where the difference becomes concrete.
With a chattel mortgage, you already own the machine. When the contract is paid out, the security interest is released and nothing else happens: the asset is simply yours, free and clear. If you ran a balloon (a lump sum deferred to the end), you settle it, refinance it, or trade the machine and roll into the next one. There is no handback decision, because there is nothing to hand back.
With a finance lease, the residual value sits waiting at the end and you choose how to deal with it. Typically you can pay it out and take ownership, refinance it across a further term, or in some arrangements return the equipment. That optionality is part of the appeal for businesses that genuinely want the flexibility to walk away or upgrade without owning an ageing asset. It is also where a lease needs care: the residual is a real commitment, and the machine's market value at that point may sit above or below it depending on how the asset held up.
Flexibility and the upgrade path
Operators who cycle through equipment on a predictable rhythm think about this differently from those who buy to keep.
A finance lease can suit a business that upgrades often and treats gear as a tool to be swapped rather than an asset to be held. The term can be matched to the useful working life, the residual keeps the payments manageable, and the end of term decision is a natural point to move into newer equipment. For fleets that need current-model machines for reliability, warranty coverage or emissions reasons, that rhythm is a feature.
A chattel mortgage suits the operator who intends to own and run the asset well past the finance term. Once it is paid out you have an unencumbered machine you can keep working, use as trade equity, or sell on your own timing. For gear that holds value and keeps earning, like well-maintained earthmoving equipment or a solid excavator, owning outright at the end is often exactly what the business wants.
Neither is more flexible in the abstract. They flex in different directions: the lease toward changing equipment, the mortgage toward keeping it.
How lenders read each structure
From the financier's side, both products are secured against the equipment, so the machine itself does a lot of the work in the assessment. Lenders look at the asset's type, age, hours or usage, and how well it holds value, because that is what backs the deal. Newer, mainstream, in-demand gear reads as stronger security than old or niche equipment with a thin resale market.
The choice between lease and mortgage does not usually change whether you get approved, but it can change how a deal is shaped. Because a finance lease keeps title with the lessor, some financiers are comfortable with certain assets under a lease that they would structure more tightly as a mortgage, and vice versa. Specialist financiers and banks approach this differently, and it is worth understanding how heavy equipment lenders differ before you assume one product is off the table. The broader equipment finance guide covers the full product family and what lenders weigh across all of them.
Decision factors by business type
The right structure depends less on the product and more on the operator.
The established operator with assets on the books. If you have a track record, own other gear outright and intend to keep this machine long term, a chattel mortgage often lines up with how you already run: own the asset, build equity, keep it earning after payout. Your accountant's view on depreciation and write-off usually carries weight here.
The business that upgrades on a cycle. If you replace equipment every few years to stay on current models, a finance lease can match that rhythm cleanly. The residual keeps payments down across the working life and the end of term is a built-in decision point to move on.
The newer ABN with work lined up. If the business is young, the focus is usually cash flow and getting the machine earning. Either structure can work, but the choice interacts with what a lender needs to see. Bring the contracts or pipeline that show the asset will pay for itself, and let the structure follow the accounting advice.
The owner operator buying a first asset. For a first major purchase, the question of whether you want to own the machine at the end tends to decide it. If this is the tool your business is built on, ownership through a chattel mortgage is often the instinct. If you would rather keep options open, a lease gives you room.
Across project-driven work, the timing of the purchase against the job pipeline matters as much as the product, which we cover in financing construction equipment through the project cycle.
Common questions
Is a lease cheaper than a chattel mortgage?
There is no fixed answer, and anyone who gives you one without seeing your deal is guessing. The total cost of either depends on the asset, the term, whether you run a residual or balloon, and the pricing a given lender offers on that specific machine. The only reliable way to compare is to see real quotes on your own equipment.
Can I switch structures partway through?
Not usually within a contract, but you make the choice again at the end of every term. A machine coming off one arrangement can be refinanced or replaced under a different structure next time, so the decision is not permanent across the life of your fleet.
Does one lender's no settle the question?
No. Lenders differ in how they assess assets, ages and business types, and a decline from one does not mean the deal is dead. A different financier with a different appetite for that asset class may see it differently, which is exactly why comparing more than one offer matters.
What to do next
Work out first whether you want to own the equipment at the end or keep the option to move on, then take your business structure to a registered tax agent for the accounting and GST view. With those two answers in hand, the product choice gets much simpler.
When you are ready to see real numbers on your actual machine, you can request three free quotes. Comparing structures side by side on your own equipment, rather than in the abstract, is the fastest way to see which one fits how your business runs.