automotive finance

Chattel Mortgage vs Hire Purchase: Which is Right for You?

Knowing and understanding the dichotomy between a chattel mortgage and a hire purchase is crucial. When opting for either, it is important to understand that the two are unique in their own ways, both in advantages and disadvantages, and can greatly affect your financial choices. This article will detail a chattel mortgage and hire purchase- what they entail and how to pick the most suitable option based on your circumstances.

chattel mortgage vs hire purchase

What is a Chattel Mortgage?

In a chattel mortgage, the lender offers money for goods that move, like equipment or cars, which the borrower raises as soon as they get it. With a chattel mortgage, a customer acquires property loaned against cash and occasionally pays back to cash lenders.

Key Features

  • Ownership and Title: From the start, the asset is yours.
  • Flexibility in Repayments: The financial situation that you are in can also affect the terms you pay within.
  • Tax Benefits: Tax reductions have the possibility of arising from interest or depreciation.


  • Immediate Ownership: You get to use the asset right away.
  • Potential Tax Deductions: Interest and depreciation can be tax-deductible.
  • Flexibility in Repayment Terms: Customizable to match cash flow.


  • Risk of Repossession: If you default on the loan, the lender can repossess the asset.
  • Interest Costs: Depending on the terms, interest can add up.
  • Impact on Credit Rating: Missed payments can affect your credit score.

What is a Hire Purchase?

The buyer pays for an asset instalment under hire purchase, which means that ownership is achieved after the completion of payment. Product ownership is only transferred to the buyer when all instalments are paid in a hire purchase system.

Key Features

  • Initial Deposit and Regular Payments: Usually requires a down payment followed by fixed monthly payments.
  • Ownership After Final Payment: The asset’s title is transferred to you after the last instalment.
  • Fixed Interest Rates: Interest rates are generally fixed throughout the term.


  • Lower Initial Costs: Requires a smaller initial outlay.
  • Fixed Payments: Easier to budget with consistent payments.
  • Option to Purchase: Own the asset at the end of the term.


  • Higher Overall Cost: Total cost can be higher than purchasing outright.
  • Depreciation Concerns: The asset might lose value before you own it.
  • Limited Ownership Until Final Payment: You don’t own the asset until all payments are made.

    chattel mortgage vs hire purchase

Key Differences Between Chattel Mortgage and Hire Purchase


  • Chattel Mortgage: Immediate ownership of the asset.
  • Hire Purchase: Ownership transfers only after the final payment.

Tax Implications

  • Chattel Mortgage: Interest and depreciation may be tax-deductible.
  • Hire Purchase: VAT and other tax treatments apply differently.


  • Chattel Mortgage: Offers more flexible repayment terms.
  • Hire Purchase: Generally, it has a fixed payment structure.

Cost and Interest

  • Chattel Mortgage: Interest rates and terms can vary.
  • Hire Purchase: Typically fixed interest rates.

Choosing the Right Option for You

Assessing Your Financial Situation

  • Cash Flow Considerations: Evaluate how each option affects your cash flow.
  • Long-Term vs. Short-Term Benefits: Consider the financial impact over time.

Business Needs and Goals

  • Asset Usage and Turnover: Determine how quickly you need and use the asset.
  • Financial Planning and Tax Strategies: Align with your broader financial goals.

Risk Tolerance

  • Comfort with Ownership and Debt: Consider your comfort level with immediate ownership versus future ownership.
  • Potential Impact on Credit and Finances: Assess how each option might affect your credit score and overall financial health.


When contemplating the best financial move, it is important to understand the difference between chattel mortgages and hire purchases. The two alternatives have their strong points and weaknesses, but the right one depends on one’s position in life, how much cash one has at one’s disposal, and the type of work one needs. For you to come up with an informed judgement, it would be prudent to consult a financial consultant who can guide you according to each situation’s peculiarities.

Frequently Asked Questions

1. What is the main difference between a chattel mortgage and a hire purchase?

An essential difference exists between the two options. In a chattel mortgage, ownership is immediate, whereas, with a hire purchase, ownership comes after the last instalment.

2. Can I claim tax deductions on a chattel mortgage?

Yes, interest and depreciation on a chattel mortgage can often be tax-deductible.

3. Is a hire purchase more expensive in the long run?

Generally, a hire purchase can be more costly due to fixed interest rates and higher payment sums.

4. What happens if I default on a chattel mortgage?

The lender can repossess the asset if you default on a chattel mortgage.

5. Are the payments for hire purchases fixed or variable?

Payments for hire purchase agreements are typically fixed.


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