Choosing the right finance option for a business vehicle is just as important as choosing the vehicle itself. The finance structure you select can influence your cash flow, tax position, ownership rights and the overall cost of borrowing, making it a decision that can have long-term implications for your business.
Whether you’re purchasing your first business vehicle or expanding your fleet, you’ll have several finance options to choose from. The challenge is knowing which one best suits your business. Each finance solution is designed for different business structures, financial objectives and operating needs, so understanding how they compare is essential to making an informed decision.
While chattel mortgages, novated leases and business loans can all be used to finance the same vehicle, they differ significantly in how they’re structured, who owns the asset, the tax implications and the level of flexibility they provide. In this guide, we’ll explain how each option works, compare their key advantages and limitations, and help you determine which finance solution is best aligned with your business goals.
Understanding Your Business Vehicle Finance Options
A chattel mortgage is one of the most popular ways for Australian businesses to finance a vehicle. Unlike other finance options, your business is the legal owner of the vehicle immediately after settlement. This means the vehicle becomes a business asset from day one, allowing you to use it without leasing restrictions while building equity as you repay the loan.
Using the Vehicle as Security
The vehicle itself secures the loan, reducing the lender’s risk and often resulting in more favourable lending terms than unsecured finance. The lender’s interest is recorded on the PPSR (Personal Property Securities Register) and removed once the loan has been paid in full. As with any secured loan, failing to meet repayments could result in the vehicle being repossessed.
Repayment Terms
Repayments are generally fixed over the life of the loan, providing certainty around your monthly expenses and making cash flow easier to manage. Loan terms commonly range between one and seven years, allowing businesses to choose a repayment period that aligns with their financial goals.
Balloon Payments Explained
Many lenders offer the option of a balloon payment (also known as a residual payment) at the end of the loan term. Choosing a balloon reduces your regular repayments by deferring part of the loan balance until the end of the agreement.
While this can improve short-term cash flow, it’s important to ensure the balloon amount is realistic. If the vehicle is worth less than the remaining balance when the loan ends, you may need to refinance or cover the shortfall yourself.
GST and Tax Considerations
One of the biggest advantages of a chattel mortgage is its potential tax benefits for eligible businesses.
If the vehicle is used more than 51% for business purposes, you may be able to:
- Claim the GST on the purchase price upfront through your next Business Activity Statement (BAS). For the 2026-27 financial year, the ATO car limit for depreciation is $69,883, which caps the maximum GST credit you can claim at $6,353.
- Claim tax deductions for the interest charged on the loan.
- Claim depreciation on the business-use portion of the vehicle, up to the same ATO car limit.
As tax rules and depreciation limits change every financial year, it’s always advisable to seek advice from your accountant to determine what you’re entitled to claim.
Key Considerations
While chattel mortgages suit many Australian businesses, they’re not the right solution for every situation.
Some considerations include:
- The vehicle generally needs to be used primarily for business purposes to maximise the available tax benefits.
- A balloon payment can reduce monthly repayments but creates a larger amount owing at the end of the loan.
- Because the vehicle secures the loan, it may be repossessed if repayments aren’t maintained.
- Businesses are responsible for ongoing ownership costs, including insurance, servicing and maintenance.
For businesses purchasing a vehicle that will primarily be used for work, a chattel mortgage can be a tax-effective option, particularly when ownership and long-term value are priorities. If you’ve already read our guide on how to finance a vehicle through your business, this structure will feel familiar. For heavy trucks, trailers and equipment that don’t fit the usual mould, our truck and equipment finance options are worth a look too.
Novated Leases: Vehicle Finance Through Salary Packaging
A novated lease is a vehicle finance arrangement that allows employees to pay for a car through salary packaging. Instead of paying for a vehicle from your take-home pay, lease repayments are deducted directly from your salary before it’s paid, reducing your taxable income in many cases.
Unlike a chattel mortgage, where the business owns the vehicle, a novated lease is a three-way agreement between the employee, their employer and a finance provider. The employee chooses the vehicle, the finance provider purchases it, and the employer deducts lease payments directly from the employee’s salary.
Running Costs Included in the Lease
Most novated leases bundle many of the ongoing vehicle expenses into a single regular payment, making budgeting easier and reducing the need to manage multiple bills throughout the year. Depending on the agreement, this may include:
- Registration
- Comprehensive insurance
- Servicing and maintenance
- Tyres
- Fuel or charging costs
- Roadside assistance
Packaging these expenses together provides greater cost certainty and convenience for employees.
What Happens at the End of the Lease?
When the lease reaches the end of its term, you’ll typically have several options. Depending on your agreement, you may be able to:
- Pay the residual value and take ownership of the vehicle.
- Trade the vehicle in and commence a new lease.
- Refinance the remaining balance.
The best option will depend on your financial circumstances and future vehicle needs.
Electric Vehicle (EV) Tax Benefits
Novated leasing has become increasingly popular for electric vehicles thanks to current Fringe Benefits Tax (FBT) concessions available on eligible EVs.
Subject to eligibility requirements and vehicle price thresholds, certain battery electric and hydrogen fuel cell vehicles may qualify for a full FBT exemption. For the 2026-27 financial year, that threshold is the luxury car tax threshold for fuel-efficient vehicles, $91,661, making eligible EVs significantly more cost-effective than traditional petrol or diesel vehicles. Note that the ATO’s electric car exemption rules are set to change from 1 April 2027, when the full exemption will be capped at EVs priced up to $75,000, with a smaller discount applying above that up to the luxury car threshold. As these rules can change over time, it’s important to confirm your eligibility with your accountant or finance specialist before making a decision.
Limitations to Consider
While novated leasing can be an excellent employee benefit, it isn’t suitable for every business or borrower. Some important considerations include:
- A PAYG salary and employer participation are required.
- It’s generally not suitable for sole traders who don’t pay themselves a wage.
- The finance arrangement is designed to benefit the employee rather than the business purchasing an asset.
- Fringe Benefits Tax (FBT) may apply, depending on the vehicle and current legislation.
For businesses looking to purchase and own a vehicle directly, a chattel mortgage or business loan is often a more appropriate solution. However, for employers wanting to offer vehicle benefits as part of a remuneration package, or employees looking to salary package a car, a novated lease can provide valuable tax and budgeting advantages.
Where a Standard Business Loan Fits In
While chattel mortgages are specifically designed for vehicle purchases, a standard business loan offers a flexible way to finance business assets, including cars, utes, vans and trucks. This can make a business loan a practical option for businesses purchasing vehicles that will also have some personal use, or when financing additional business costs alongside the purchase.
The loan isn’t always tied to the vehicle and lenders typically assess your application based on your business’s financial position, trading history and cash flow. Although this flexibility can make a business loan suitable for a wider range of situations, it may also result in higher interest rates compared to secured vehicle finance.
Using Business Finance Beyond Vehicles
One of the biggest advantages of a standard business loan is its versatility. Depending on the lender and loan structure, you may be able to finance more than just the vehicle itself.
For example, a business loan can potentially be used to cover:
- Vehicle purchases.
- Vehicle accessories and fit-outs.
- Signwriting or branding.
- Equipment or tools.
- Additional working capital alongside the vehicle purchase.
This flexibility can be particularly beneficial for businesses investing in multiple assets at once.
Choosing Between Secured and Unsecured Loans
Business loans are generally available as either secured or unsecured finance.
- A secured business loan requires an asset as security, which may or may not be the vehicle being purchased. Because the lender’s risk is lower, secured loans often offer more competitive interest rates.
- An unsecured business loan doesn’t require specific security, making it a suitable option for businesses that don’t want to use assets as collateral. However, this added flexibility usually comes with higher interest rates and may involve stricter lending criteria.
Factors To Consider
While flexible, business loans aren’t always the most cost-effective way to finance a vehicle. Some potential drawbacks include:
- Interest rates are often higher than secured vehicle finance, particularly for unsecured loans.
- Approval may require more financial documentation, such as BAS statements, bank statements and trading history.
- The application process can sometimes take longer than a straightforward chattel mortgage.
- Businesses may miss out on some of the vehicle-specific tax advantages associated with a chattel mortgage.
For businesses that simply need funding rather than a dedicated vehicle finance product, a standard business loan can offer valuable flexibility. However, if the primary purpose is purchasing a business vehicle, it’s worth comparing the costs and tax implications against a chattel mortgage before making a decision.
Chattel Mortgage vs Novated Lease vs Business Loan: Side by Side
The table below highlights the key differences between a chattel mortgage, a novated lease and a standard business loan, making it easier to compare your options at a glance.
| Feature | Chattel Mortgage | Novated Lease | Business Loan |
| Who owns the vehicle? | Your business from settlement. | The finance provider during the lease term, with options available at the end of the lease. | Your business from settlement. |
| Who applies? | The business (ABN required). | The employee, with the agreement facilitated through their employer. | The business (ABN required). |
| Security | The vehicle secures the loan and is registered on the PPSR. | Governed by the lease agreement rather than a traditional secured loan. | Can be secured against an asset or provided unsecured, depending on the lender. |
| Tax treatment | Eligible businesses may claim interest and depreciation deductions based on business use. | Salary packaging may reduce the employee’s taxable income, subject to eligibility. | Interest may be tax deductible depending on how the loan funds are used. |
| GST considerations | Eligible businesses may claim the GST credit upfront (subject to ATO rules and limits). | GST benefits are generally managed within the salary packaging arrangement. | GST treatment depends on how the borrowed funds are used. |
| Best suited to | Businesses purchasing vehicles for business use and wanting ownership from day one. | Employers offering vehicle benefits as part of an employee remuneration package. | Businesses wanting flexible finance that can cover vehicles and other business expenses. |
Read More: How To Finance a Vehicle Through Your Business
How to Choose the Right Finance Option for Your Business
With several finance options available, choosing the right one comes down to understanding how the vehicle will be used, who it’s intended to benefit, and what your business hopes to achieve.
- Cash Flow Requirements: Think about how much your business can comfortably allocate towards vehicle repayments each month. While some finance options may offer lower ongoing repayments, they could include a larger final payment or different ownership arrangements.
- Business Structure: Your business structure can determine which finance options are available. Sole traders, partnerships and companies may all have different eligibility requirements, particularly when it comes to salary packaging through a novated lease.
- Ownership Preferences: Ask yourself whether owning the vehicle is important. If your business wants the vehicle recorded as an asset from day one, a chattel mortgage or business loan may be more appropriate than leasing.
- Tax Position: Potential tax benefits can vary considerably depending on the finance structure, your business use and current ATO rules. GST credits, depreciation, interest deductions and Fringe Benefits Tax (FBT) should all be considered before making a decision.
- Expected Vehicle Usage: How the vehicle will be used is another key consideration. Businesses intending to use the vehicle primarily for work may find different benefits available compared to vehicles that are used extensively for personal travel.
- Future Business Growth: Consider whether your finance solution will continue to suit your business as it grows. If you’re planning to purchase additional vehicles or expand your fleet, flexibility and scalability may become increasingly important.
- Vehicle Replacement Plans: If you regularly upgrade your vehicles every few years, compare how each finance option handles the end of the agreement, including any residual or balloon payments.
Comparing the Costs Over Time
The cheapest monthly repayment doesn’t always translate to the lowest overall cost. Looking beyond the advertised interest rate can help you understand the true cost of each finance option.
- Monthly Repayments: Compare how much you’ll be paying each month and whether those repayments comfortably fit within your business budget. Our car loan repayment calculator can help you model this against your own figures (results are estimates only).
- Total Interest Paid: A lower interest rate or shorter loan term can significantly reduce the total amount paid over the life of the finance agreement.
- Residual or Balloon Payments: Some finance products allow a balloon or residual payment at the end of the term. While this can reduce monthly repayments, it also leaves a larger balance owing at the conclusion of the agreement.
- Running Costs: Consider whether ongoing expenses such as servicing, registration, insurance and fuel are included in your finance arrangement or will need to be managed separately.
- End-of-Term Costs: Think about what happens when the finance agreement ends. Will you own the vehicle outright, need to pay a residual amount or decide whether to refinance or upgrade?
- Which Option Offers the Best Value?: The right finance option isn’t necessarily the one with the lowest repayments, it’s the one that best balances affordability, ownership, flexibility and potential tax benefits for your business.
Choosing the Right Business Vehicle Finance Starts with the Right Advice
There’s no one-size-fits-all approach to business vehicle finance. Taking the time to compare your options before signing a finance agreement can help you maximise potential tax benefits, manage repayments more effectively and choose a solution that supports your business as it grows.
If you’re ready to finance your next business vehicle but aren’t sure which option is right for you, the team at Avara Finance is here to help. We’ll take the time to understand your business, explain your finance options and help you compare solutions.
Whether you’re buying your first work ute, upgrading a company car or expanding your fleet, Avara Finance can help you secure a competitive finance solution. Get in touch with our team today, or apply online, and let us help you drive your business forward with confidence.
Frequently Asked Questions
Is a chattel mortgage the same as a business loan?
A chattel mortgage is a type of business loan, but not every business loan is a chattel mortgage. A chattel mortgage is secured specifically against the vehicle or equipment you’re financing, which usually means a lower interest rate. A standard business loan can be secured against something else, or unsecured altogether, and isn’t tied to one asset.
Can a sole trader get a novated lease?
Only if the sole trader pays themselves a genuine wage through a company structure and is a PAYG employee of that entity. A sole trader operating under their own ABN without a payroll arrangement generally can’t novate a lease, since there’s no employer to deduct the payments from. A chattel mortgage or business loan is usually the workable option instead.
Which gives the better tax deduction, a chattel mortgage or a novated lease?
It depends on who’s meant to benefit. A chattel mortgage lets the business claim interest and depreciation on the business-use portion of the vehicle. A novated lease reduces the employee’s personal taxable income through pre-tax salary deductions instead. They solve different problems, so the better option depends on whether you’re optimising for the business or the individual.
Do you pay GST on a novated lease?
Novated lease providers generally purchase the vehicle GST-free and pass that saving through, so there’s no GST on the vehicle’s purchase price and, in most cases, none on the packaged running costs either. This differs from a chattel mortgage, where the business claims a GST credit through its own BAS, capped at one-eleventh of the ATO’s car limit for the year.
What happens at the end of a chattel mortgage or novated lease term?
With a chattel mortgage, once the loan, including any balloon payment, is repaid, the security is removed and the business owns the vehicle outright. With a novated lease, the employee can usually pay the residual value to keep the car, trade it in and start a new lease, or hand it back, depending on what the lease provider offers.
