Difference between an Equipment Rental and a Chattel Mortgage

  • 07 August, 2020
  • Sharon Piening

A question I am often asked by clients is, “what is the difference between and an Equipment Rental and a Chattel Mortgage?”.

Whilst both are finance products, their implications are different from both an ownership and tax perspective.

For some circumstances and types of equipment, a Chattel Mortgage may be the best option. In other cases, using an Equipment Rental structure may be preferable.

The key is the choice of product needs to be aligned to your circumstances.

Equipment Rental

Under an Equipment Rental Agreement, the Lender purchases and owns the asset(s).

The asset(s) are then rented to the business, for a fixed period and monthly repayment.

Equipment that is rented is of a type that typically depreciates quickly and/or needs to be frequently updated (Examples being IT Equipment, laptops, phone systems.)

At the end of the rental period, the business might opt to:

  • Purchase the goods from the lender for the agreed market value
  • Extend the rental period
  • Hand the goods back to the Lender with no more to pay
  • Enter another agreement to rent new goods

Equipment Rental Pros

  • Provides access to the latest equipment and current technology, which may be needed to remain relevant and competitive
  • Helps avoid a situation where the business is left owning equipment that is outdated within a short timeframe
  • Some Rental Agreements can also include the cost of servicing, maintaining the equipment
  • As the Lender owns the asset, they claim the GST input tax credit, the result being the amount financed is lower than it would be with a Chattel Mortgage (This can be important for more expensive equipment)
  • Repayments can be structured to suit your cashflow
  • At the end of the term, you can simply hand the equipment back to the Lender and not be exposed to Residual risk

Equipment Rental Cons

  • The asset is owned by the Lender and not the business
  • As the assets financed are generally of the type that depreciate quickly, the repayment structure needs to, (in most instances), fully cover the cost of the asset plus interest by expiry. The result being repayments can be higher.

Equipment Rental Tax Implications

The extent to which the equipment being financed is used for business purposes, the rentals may be tax-deductible.

Chattel Mortgage

One of the key differences between an Equipment Rental and a Chattel Mortgage is that with the Chattel Mortgage, the business owns the asset.

The Lender provides the funds to purchase the asset and takes a charge over the asset (Specific Security Agreement) as security.

The equipment being purchased will appear as an asset on the business balance sheet and the finance a liability.

Another difference between an Equipment Rental and a Chattel Mortgage is that with the Chattel Mortgage, you can include a balloon payment.

The benefit of including a balloon payment is that it can reduce your agreed repayments, as the balloon is not repaid until your last payment is due.

The downside of the Balloon is that you will pay more interest over the term of the facility.

Other differences between an Equipment Rental and a Chattel Mortgage include:

Chattel Mortgage Pros

  • 100% of the purchase can be financed
  • Can include a deposit to reduce the repayments
  • Using a Balloon can also reduce repayments
  • Payments can be structured to your cashflow
  • Borrowed funds are directly invested into assets that the business owns

Chattel Mortgage Cons

  • The business has full title to the goods only when the loan (including the Balloon) is fully repaid
  • The business carries the liability as the owner and user of the goods
  • The business is responsible for maintaining the goods
  • The business is exposed to Residual risk – that is; in some instances, the asset may be worth less than the Balloon payment at expiry

Chattel Mortgage Tax implications

With a Chattel Mortgage, if the asset is used for business purposes, you may be able to claim the GST included in the purchase price as an Input Tax Credit.

You may also be able to claim interest and depreciation costs, depending on how much you use the equipment or motor vehicle for business purposes


Given the differences between an Equipment Rental and a Chattel Mortgage, it is important to seek guidance before committing to one form of finance or the other.

Both are terrific products, used and structured correctly. However, they are very different, so it is important to understand their implications. Mistakes can be expensive to unwind.

Also, depending on the equipment being financed, the choice of Lender will be important. Some specialise in particular fields or simply do it better than others.

If you would like to learn more about the difference between an Equipment Rental and Chattel Mortgage, don’t hesitate to give me a call