Equipment Finance vs Chattel Mortgage: What’s the Difference?

Equipment Finance vs Chattel Mortgage: What’s the Difference?

Quick answer

Equipment finance is the broad term for finance used to purchase business vehicles, machinery and other assets.

A chattel mortgage is one specific type of equipment finance. With a chattel mortgage, the business owns the asset from the beginning while the lender takes security over it until the loan is repaid.

What is equipment finance?

Equipment finance allows a business to access vehicles, machinery or equipment without paying the full purchase price upfront.

Depending on the arrangement, equipment finance may include:

• a chattel mortgage or equipment loan

• hire purchase

• a finance lease

• other asset-backed business loans

Each option handles ownership, repayments and the end of the agreement differently.

What is a chattel mortgage?

A chattel mortgage is a business loan used to purchase an asset.

The business generally owns the asset from the beginning. The lender registers an interest over the vehicle or equipment as security until the finance is repaid.

Some agreements include a final balloon payment, which can reduce the regular repayments but leaves a larger amount payable at the end.

How are they different?

The simplest way to understand the difference is:

Equipment finance is the category. A chattel mortgage is one product within that category.

For example, a business seeking finance for an excavator may compare a chattel mortgage with hire purchase or a finance lease before choosing a structure.

Chattel mortgage

• The business owns the asset from the beginning.

• The asset usually secures the loan.

• Repayments are made over an agreed term.

• A balloon payment may be available.

  
  

Hire purchase

• The business uses the asset while paying it off.

• Ownership generally transfers after the final payment.

  
  

Finance lease

• The lender owns the asset.

• The business pays to use it for an agreed period.

• End-of-term options depend on the agreement.

  
  

Which option is right for my business?

The answer depends on:

• how long you expect to keep the equipment

• whether ownership from day one is important

• your available cash flow

• the preferred repayment term

• any balloon or residual amount

• the accounting and tax treatment

  
  

The lowest repayment is not automatically the best option. Look at the total cost, fees, ownership structure and end-of-term obligations.

Practical example

A landscaping company is purchasing a $90,000 excavator.

It may choose a chattel mortgage because it wants to own the excavator immediately and keep it for many years. Another business that regularly upgrades equipment may prefer a lease arrangement.

Both businesses are using equipment finance, but the most suitable product may be different.

Common questions

Is an equipment loan the same as a chattel mortgage?

Often, yes. Some lenders use the term equipment loan instead of chattel mortgage, even though the structure is similar.

Can I use a chattel mortgage for used equipment?

Potentially. Approval usually depends on the equipment’s age, condition, value and the lender’s criteria.

Can a chattel mortgage include a balloon payment?

Yes, some agreements allow a balloon payment. This may reduce regular repayments but increases the amount due at the end.

Key takeaways

• Equipment finance is a broad category.

• A chattel mortgage is one type of equipment finance.

• Ownership, repayments and end-of-term arrangements vary between products.

• The right structure depends on the asset and the needs of the business.

  
  

Need help comparing the options?

Tattersalls Finance can help you compare equipment finance structures and understand how the repayments, ownership and loan terms differ.

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