Chattel mortgage: What it is and how it works for business assets

Published Friday 24 July 2026

Table of contents

• What is a chattel mortgage?
• How does a chattel mortgage work?
• What can you finance with a chattel mortgage?
• Chattel mortgage tax benefits
• Chattel mortgage vs lease vs hire purchase
• Who's eligible for a chattel mortgage?
• Balloon payments explained
• What happens at the end of a chattel mortgage?
• Simplify your business asset financing with Xero
• FAQs on chattel mortgages

Key takeaways

• A chattel mortgage is a business finance option where you take ownership of the asset straight away and use it as security for the loan, giving you access to Goods and Services Tax (GST) credits, interest deductions, and depreciation claims.
• Chattel mortgages suit Australian businesses that want to finance vehicles, equipment, or machinery with fixed repayments over one to seven years, often with a balloon payment at the end to lower monthly costs.
• Unlike a lease or hire purchase, a chattel mortgage puts the asset in your name from the start, which means you can claim GST credits upfront and depreciate the asset on your balance sheet.
• Eligibility typically requires an Australian Business Number (ABN), GST registration, and a reasonable credit history, with financing available for up to 100% of the asset's purchase price.

What is a chattel mortgage?

A chattel mortgage is a type of secured business loan used to buy a movable asset, such as a car, truck, or piece of equipment. The word "chattel" refers to movable personal property, as opposed to real estate. Your business borrows funds to purchase the asset, and the lender takes a mortgage over the asset until the loan is repaid in full.

Chattel mortgages are one of the most popular asset finance options in Australia, particularly for small businesses that need vehicles or equipment to operate. They're available through banks, specialist lenders, and finance brokers.

How ownership works

With a chattel mortgage, your business owns the asset from the moment of purchase. The lender doesn't hold the title. Instead, the lender registers a security interest over the asset on the Personal Property Securities Register (PPSR). This means you can use the asset however you need to for your business straight away.

Once you've made all your repayments and satisfied the loan terms, the lender removes the security interest. You then hold the asset free and clear, with no further obligations. This ownership structure is one of the main reasons businesses choose chattel mortgages over alternatives like leasing. Assets financed this way are recorded as fixed assets on your balance sheet from day one.

How does a chattel mortgage work?

A chattel mortgage follows a straightforward process. You identify the asset you want to buy, apply for finance, and once approved, the lender pays the seller directly. You then make regular repayments over an agreed term, typically with a fixed interest rate.

The loan amount can cover up to 100% of the asset's purchase price, depending on the lender and your financial position. Terms usually range from one to seven years, and you may choose to include a balloon payment at the end of the loan to reduce your regular repayments.

The application process

Applying for a chattel mortgage involves a few key steps.

1. Choose the asset you want to finance and get a quote from the supplier.
2. Approach a lender or finance broker with your application.
3. Provide supporting documents such as your ABN, financial statements, and identification.
4. Receive a loan offer outlining the interest rate, term, repayment schedule, and any balloon payment.
5. Accept the offer, and the lender settles the purchase with the supplier.
6. Begin making your scheduled repayments.

The timeline from application to settlement can vary, but many lenders process straightforward applications within a few business days.

Repayment structure

Chattel mortgage repayments are typically fixed, meaning you pay the same amount each month for the life of the loan. This makes it easier to plan your cash flow and budget for the expense.

Your repayment amount depends on several factors: the loan amount, interest rate, loan term, and whether you include a balloon payment. A balloon payment is a lump sum due at the end of the loan, which reduces your regular installments but means you'll owe a larger amount at the end.

Interest on a chattel mortgage is usually calculated on the full loan amount from the start. Some lenders offer the option to structure repayments differently, so it's worth comparing offers from multiple providers.

What can you finance with a chattel mortgage?

Chattel mortgages cover a wide range of business assets. If the asset is movable and used primarily for business purposes, it may qualify.

Common assets financed through chattel mortgages include:

• cars, utes, vans, and trucks
• trailers and transport equipment
• construction and earthmoving machinery
• agricultural equipment and farm vehicles
• manufacturing equipment
• medical and dental equipment
• IT hardware and office equipment

Most lenders require the asset to be less than 12 to 15 years old at the end of the loan term. New and used assets both qualify, though the terms and interest rates may differ for older items. Some lenders also finance specialised industry equipment, such as printing presses or refrigeration units, provided the asset holds reasonable resale value.

The asset must be used primarily for business purposes. If you use a vehicle partly for personal travel, you'll need to account for the business-use percentage when claiming tax deductions. Keeping a logbook for the first 12 weeks of use is one of the accepted methods for calculating this split.

Chattel mortgage tax benefits

One of the biggest advantages of a chattel mortgage is the range of tax benefits available to your business. Because you own the asset, you can claim deductions that aren't available with some other finance options.

Always check the latest rules with the Australian Taxation Office (ATO) or your accountant, as thresholds and eligibility criteria can change each financial year.

GST credits

If your business is registered for GST, you can claim the GST included in the purchase price of the asset as an input tax credit. You claim this on your next Business Activity Statement (BAS) after the purchase, which puts money back in your pocket sooner.

For passenger vehicles, the maximum GST credit you can claim is capped at $6,334 for the 2025-26 financial year. This cap applies regardless of the vehicle's actual purchase price. For other business assets like trucks, machinery, and equipment, there's no cap on the GST credit.

Interest deductions

The interest you pay on your chattel mortgage is tax-deductible as a business expense. You can claim the interest portion of each repayment over the life of the loan, reducing your taxable income year by year.

This applies whether your repayments are fixed or variable, and whether or not you have a balloon payment included in the loan structure.

Depreciation

Because you own the asset, you can claim depreciation on it over its effective life. Depreciation allows you to spread the cost of the asset across multiple financial years, reducing your taxable income in each of those years.

For the 2025-26 financial year, the car depreciation limit is $69,674. This means you can only depreciate up to this amount for passenger vehicles, even if the car costs more.

If your business has an annual turnover under $10 million, you may also be eligible for the instant asset write-off. Under this measure, you can immediately deduct the full cost of eligible assets costing less than $20,000 each, rather than depreciating them over several years.

Chattel mortgage vs lease vs hire purchase

Choosing between a chattel mortgage, a lease, and a hire purchase depends on your priorities around ownership, tax treatment, and cash flow. Here's how these three common options compare.

Ownership differences

Each finance option treats asset ownership differently:

• Chattel mortgage: You own the asset from day one, and the lender holds a security interest until you repay the loan.
• Finance lease: The lessor owns the asset during the lease term, and you may have the option to purchase it at the end.
• Hire purchase: The finance company owns the asset during the agreement, and ownership transfers to you once you've made all payments, including any final payment.

If owning the asset immediately matters to your business, a chattel mortgage gives you that from the start.

Tax treatment differences

The way each option affects your tax position varies:

• Chattel mortgage: Claim GST credits upfront, deduct interest, and depreciate the asset.
• Finance lease: Lease payments are generally tax-deductible, but you can't claim depreciation because you don't own the asset during the lease; GST is included in each lease payment rather than claimed upfront.
• Hire purchase: similar depreciation benefits to a chattel mortgage, but GST credits are typically claimed progressively with each instalment rather than upfront.

For GST-registered businesses that want the upfront GST credit, a chattel mortgage usually offers the most favourable treatment.

Which option suits your business?

The right choice depends on your situation. A chattel mortgage may be a good fit if you:

• want to own the asset from the start
• are registered for GST and want to claim the credit upfront
• prefer fixed repayments for budgeting
• want to claim depreciation on the asset

A lease might suit you better if you prefer to upgrade equipment regularly and don't need to own the asset. A hire purchase could work if you want eventual ownership but prefer a structure where the finance company holds the asset until you've paid it off.

Who's eligible for a chattel mortgage?

Chattel mortgages are designed for businesses, not individuals buying assets for personal use. To qualify, you'll generally need to meet a few requirements.

Common eligibility criteria include:

• a valid ABN
• GST registration (required for claiming GST credits)
• a reasonable credit history
• evidence the asset will be used primarily for business purposes
• financial statements or tax returns showing your business can service the loan

Sole traders, partnerships, companies, and trusts can all apply. Some lenders have minimum trading requirements, such as 12 months in business, while others offer options for newer businesses with strong financials.

The amount you can borrow depends on the asset value, your creditworthiness, and the lender's policies. Many lenders finance up to 100% of the asset's purchase price, though putting down a deposit can reduce your repayments and total interest cost.

Balloon payments explained

A balloon payment is a lump sum due at the end of your chattel mortgage term. Including one is optional, but it's a common choice for businesses that want lower regular repayments.

For example, on a $50,000 chattel mortgage over five years, setting a 30% balloon payment means $15,000 would be due at the end of the term. Your monthly repayments during the loan would be calculated on the remaining $35,000 (plus interest on the full amount), making them noticeably lower than if you repaid the full $50,000 over the same period.

The trade-off is that you'll need to have the funds available when the balloon payment falls due. You can pay it from your own cash reserves, refinance the remaining balance, or sell the asset to cover it. Planning ahead for this is important, especially if the asset is likely to depreciate in value over the loan term.

Balloon payments are sometimes called residual values. Your lender will set a maximum balloon amount based on the asset type, loan term, and the expected value of the asset at the end of the agreement.

What happens at the end of a chattel mortgage?

What happens when your chattel mortgage term ends depends on whether you included a balloon payment.

If there's no balloon payment, you've already paid the loan in full through your regular repayments. The lender removes their security interest from the PPSR, and you hold the asset outright with no further obligations.

If you have a balloon payment, you'll need to settle that final lump sum. At that point, you have a few options:

• Pay the balloon amount from your business funds.
• Refinance the balloon payment into a new loan.
• Sell the asset and use the proceeds to pay off the balance.
• Trade in the asset and finance a replacement.

Once the balloon is paid, the lender releases the security interest, and the asset is yours free and clear. If the asset still has useful life, you can continue using it with no further finance costs.

Simplify your business asset financing with Xero

Tracking loan repayments, claiming GST credits, and managing depreciation schedules takes time. Xero's cloud accounting software helps you manage your fixed assets, track expenses, and stay on top of your obligations, so you can focus on running your business rather than chasing paperwork.

Whether you're financing new equipment with a chattel mortgage or managing day-to-day expenses, having a clear view of your finances makes better decisions possible. Get one month free and see how Xero can help you spend less time on admin and more time on what matters.

FAQs on chattel mortgages

Find answers to some common questions about chattel mortgages in Australia.

Do you need a deposit for a chattel mortgage?

Not always. Many lenders offer up to 100% financing on the asset's purchase price. Putting down a deposit can reduce your repayments and the total interest you pay over the loan term.

Can you use a chattel mortgage for a used vehicle?

Yes. Chattel mortgages can finance both new and used vehicles. Most lenders require the asset to be less than 12 to 15 years old at the end of the loan term, and interest rates may be slightly higher for older vehicles.

How long does chattel mortgage approval take?

Many lenders process straightforward applications within two to five business days. Complex applications or those requiring additional documentation may take longer.

Is a chattel mortgage the same as a car loan?

Not exactly. A car loan is typically a personal finance product, while a chattel mortgage is a business finance arrangement. Chattel mortgages offer tax benefits like GST credits and depreciation that aren't available with standard personal car loans.

Can sole traders get a chattel mortgage?

Yes. Sole traders with a valid ABN and GST registration can apply for a chattel mortgage. You'll need to show that the asset is used primarily for business purposes and that your business can service the loan repayments.