Compare finance types
Chattel mortgage vs novated lease: which is right for your business?
The main difference between a chattel mortgage and a novated lease is who the borrower is: a chattel mortgage is business finance where your company or ABN owns the vehicle and claims business deductions, while a novated lease is a salary packaging arrangement where an employee leases the car and their employer deducts the payments from pre-tax salary.
Chattel mortgage vs Novated lease at a glance
| Chattel mortgage | Novated lease | |
|---|---|---|
| What it is | A chattel mortgage is equipment or vehicle finance where your business owns the asset from purchase and the lender holds a mortgage over it as security until the loan is repaid. It is the most common structure for business vehicles, machinery and plant in Australia. | A novated lease is a three-way agreement between an employee, their employer and a financier, where the employer deducts the lease payments and running costs from the employee’s pre-tax salary. The employee chooses and uses the car; the obligation moves with them if they change jobs. |
| Amount | $10,000 – $2,000,000 | $15,000 – $150,000 |
| Term | 12–84 months | 12–60 months |
| Indicative rate | 6.9% – 14.5% p.a. | 6.9% – 13.5% p.a. |
| Rate type | Fixed | Fixed |
| Security | Secured by the asset | Secured by the asset |
| Repayments | Monthly (weekly or fortnightly available) | Deducted each pay cycle from salary |
| Typical speed | 24–48 hours for low-doc up to $150k; longer for full-doc | 3–10 business days including employer sign-off |
| Best for | Businesses buying vehicles or equipment they want to own and depreciate | Salaried employees on higher marginal tax rates whose employer offers salary packaging |
| Consider the other if | Assets you plan to return or upgrade every couple of years | Contractors, sole traders, people in insecure employment, or low-value used car purchases |
| Tax | Interest and depreciation are generally deductible and GST may be claimable upfront. Confirm with your accountant. | Involves income tax, GST and FBT interactions. Eligible EVs and PHEVs may attract an FBT exemption. Get advice from your accountant and employer. |
| Who the finance is for | A business (company, trust or ABN sole trader) | A salaried employee, via their employer |
| Who owns the vehicle | Your business, from day one | The financier, for the term |
| Tax mechanism | Interest, depreciation and GST credits | Pre-tax salary deduction, with FBT managed via employee contributions |
| If your circumstances change | Business keeps the asset and the debt | Obligation reverts to you personally if you leave the job |
| Running costs | Paid and claimed separately by the business | Usually bundled into the packaged payment |
Rates shown are indicative ranges observed across our lender panel for the period stated. They are not an offer or quote. Your rate depends on your business, the lender, the amount, the term and the security offered. The lender makes the final credit decision.
When to choose a chattel mortgage
A chattel mortgage is usually the better fit for businesses buying vehicles or equipment they want to own and depreciate. Its main advantages are lower rates than unsecured lending, gst on the price usually claimable upfront, balloon option lowers repayments. Consider the alternative if assets you plan to return or upgrade every couple of years.
When to choose a novated lease
A novated lease is usually the better fit for salaried employees on higher marginal tax rates whose employer offers salary packaging. Its main advantages are payments and running costs come from pre-tax salary, gst savings on the vehicle price and running costs, one bundled payment covers fuel, servicing and insurance. Consider the alternative if contractors, sole traders, people in insecure employment, or low-value used car purchases.
Our verdict
Use a chattel mortgage when the vehicle is a business asset used predominantly for work — a ute, van or fleet car — and the business wants ownership, GST credits and depreciation. Use a novated lease when you are a salaried employee on a higher marginal tax rate whose employer offers packaging, and the car is mainly for private use.
These products are often compared by people who could only use one of them. If you are a sole trader, contractor or company director buying a work vehicle, a novated lease is not available to you at all — salary packaging requires an employer relationship. Conversely, a PAYG employee cannot access business vehicle finance for a private car simply because they have an ABN on the side.
For someone who genuinely has both options — a director who also draws a salary from their own company — the comparison turns on business-use percentage and marginal tax rate. High business use points to the chattel mortgage, where GST and depreciation follow the vehicle. Mostly private use with a high salary points to the novated lease, provided the FBT position is managed properly. This is one of the cases where the accountant, not the broker, should make the final call.
Chattel mortgage
A chattel mortgage is equipment or vehicle finance where your business owns the asset from purchase and the lender holds a mortgage over it as security until the loan is repaid. It is the most common structure for business vehicles, machinery and plant in Australia.
Novated lease
A novated lease is a three-way agreement between an employee, their employer and a financier, where the employer deducts the lease payments and running costs from the employee’s pre-tax salary. The employee chooses and uses the car; the obligation moves with them if they change jobs.