When you finance a business asset, the finance itself comes in a few different shapes. The two people ask about most are the finance lease and hire purchase, and while they look similar on the surface, they differ in one thing that matters a lot: who owns the asset, and when. This guide compares them in plain English, and shows where a chattel mortgage fits alongside them, so you can walk into the conversation knowing which is which.
The three main asset finance structures
Most business asset finance comes down to three structures. They all get you the asset and let you pay over time; the difference is in ownership, the end of the term, and how they are treated for tax.
- Chattel mortgage: you own the asset from day one, and the lender holds a mortgage over it as security. Covered in detail in our guide to how a chattel mortgage works.
- Finance lease: the lender owns the asset and leases it to you.
- Hire purchase: you hire the asset and take ownership once the final payment is made.
What is a finance lease?
With a finance lease, the lender buys the asset and leases it to you for an agreed term. You get full use of it and make regular lease payments, but the lender remains the owner during the term. At the end, you typically have options, such as making a final payment, extending the lease, or returning the asset.
A finance lease often suits businesses that want the use of an asset without owning it outright, or that prefer to keep the asset off their own books in a particular way. Because the treatment for tax and accounting is specific, it is a structure to talk through with your accountant.
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What is hire purchase?
Hire purchase sits a step closer to ownership. You hire the asset and pay it off in instalments over the term, and once the final instalment is made, ownership transfers to you. Through the term you are using the asset and paying it down, with the prize of owning it outright at the end.
Hire purchase suits businesses that fully intend to keep the asset long term and want a clear path to owning it, without paying the whole cost upfront.
How they differ
The structures rhyme, but the details matter. Here is where they part ways.
Ownership
This is the big one. Under a finance lease the lender owns the asset for the life of the agreement. Under hire purchase you are working toward ownership and take title at the end. A chattel mortgage flips it again: you own it from the start.
Tax and accounting
Each structure is treated differently for GST, depreciation and deductions, and the right choice can come down to your tax position as much as anything. This is squarely a conversation for your accountant, because the best structure on paper depends on how your business is set up.
End of the term
A finance lease usually leaves you with a decision at the end, pay a final amount, re-lease, or hand the asset back. With hire purchase, the end of the term simply means the asset is yours. Knowing which end state you want often points to the right structure.
Which one is right for you?
It comes down to a few honest questions. Do you want to own the asset outright, or just use it? Will you keep it long term or upgrade it? And what does your accountant say about the tax treatment for your situation? If certainty of ownership matters, hire purchase or a chattel mortgage lean your way. If flexibility and use matter more, a finance lease might. There is rarely one right answer, only the one that fits your business.
How a broker helps
The structures are only half the picture. The other half is which lender offers the best version of the structure you want, and how it is set up. A broker matches the structure to your goals, then compares how different lenders handle it. At Treadgold Finance we work with 40+ lenders across asset finance, so whether you are financing equipment, a work vehicle or business gear, we help you land on the structure and the lender that genuinely suit, and explain the trade offs in plain English along the way. Tell us what you are financing and we will take it from there.
Frequently Asked Questions
What is the difference between a finance lease and hire purchase?
The main difference is ownership. With a finance lease the lender owns the asset and leases it to you. With hire purchase you pay the asset off in instalments and own it once the final payment is made.
Who owns the asset during the term?
Under a finance lease, the lender owns it for the life of the agreement. Under hire purchase, the lender holds title until you make the final payment, then it transfers to you. Under a chattel mortgage, you own it from day one.
Which is better, finance lease or hire purchase?
Neither is universally better. It depends on whether you want to own the asset or just use it, whether you will keep or upgrade it, and your tax position. Your accountant can help you weigh the tax treatment for your situation.
Do you own the asset at the end of hire purchase?
Yes. Once the final instalment is paid, ownership of the asset transfers to you.
How are they treated for tax?
Finance lease, hire purchase and chattel mortgage are each treated differently for GST, depreciation and deductions. Because the best option depends on how your business is structured, this is a question for your accountant.
Where does a chattel mortgage fit in?
A chattel mortgage is the third common structure. You own the asset from the start and the lender takes a mortgage over it as security until the finance is repaid. It suits businesses that want ownership on the books straight away.
