Chattel mortgage or Rent to Own: which one suits

Chattel mortgage in plain terms

A chattel mortgage is a loan secured against the equipment. You own the equipment outright from day one, and the funder holds title against the loan until it is paid out. Your monthly repayments run for the term, and when the final payment is made the security is released and the equipment is yours free of finance.

Because you are the owner from the start, you buy the equipment and the GST on the purchase is claimed upfront rather than being added to your repayments. Your repayments do not carry GST.

Rent to Own in plain terms

Rent to Own is a rental that ends in ownership. The funder owns the equipment during the term and rents it to you for a fixed monthly amount. At the end, ownership transfers to you for one or two further monthly payments, depending on the arrangement, and your quote will show which applies to you.

Because it is a rental, the rentals are quoted excluding GST and GST applies on top, shown separately on your quote. That is the opposite of a chattel mortgage, and it is the difference most people miss.

The three differences that actually matter

Who owns it during the term. On a chattel mortgage, you do, with the funder holding security. On Rent to Own, the funder does, until ownership transfers at the end.

Where the GST sits. On a chattel mortgage the GST is in the purchase and claimed upfront, so your repayments do not carry it. On Rent to Own the GST is in the rentals, applied on top of the monthly figure.

What happens at the end. A chattel mortgage ends when the final repayment is made, unless you have chosen a balloon. Rent to Own ends with a further payment or two and the equipment is yours.

Balloons only apply to one of them

A balloon is a larger amount left at the end of a chattel mortgage, which lowers the monthly repayment along the way in exchange for something to settle later. It is a choice, not a requirement, and plenty of chattel mortgages are written without one.

Rent to Own has no balloon and no residual. That is the structural difference between them at the end of the term, and it is worth understanding before you choose, because a balloon is a decision you live with for years. See what to do when your balloon payment is due if you already have one coming.

What we cannot tell you

Which one suits your books. That is a genuine limit rather than a dodge.

Both structures may make things claimable. On a chattel mortgage, depreciation on the asset and the interest portion of your repayments may be deductible, and the GST on the purchase may be claimable upfront. On Rent to Own, the rentals may be treated differently again.

How any of that lands depends on your entity, your turnover, how the equipment is used and the rules in force in the year you buy. Your accountant is the right person to answer it, and we will give them whatever figures they need. Anyone who tells you which structure is better for your tax position without seeing your accounts is guessing.

How to choose without the tax answer

You can get a long way on the structural questions alone.

If holding title from day one matters to you, that points to a chattel mortgage. If you would rather keep the commitment simple and know the end of term holds no large amount, that points to Rent to Own. If you want a lower monthly figure and are comfortable settling something later, that is a balloon, which means a chattel mortgage.

Then take the shortlist to your accountant rather than the whole question. It is a faster conversation and a cheaper one.

Which lender do I go to

You do not. Someone from our team looks at what you are buying and your situation, compares lenders, and arranges it. Figures are ex GST, and nothing is settled until a funder has assessed it.