Hire purchase: use the asset now, own it at the final payment.

It is far less common than it once was. Under hire purchase the financier owns the asset and you hire it, with ownership transferring automatically after the final instalment. Since the GST changes that made chattel mortgage more attractive for businesses accounting on a cash basis, most equipment lending is written as a chattel mortgage or lease instead. Some lenders still offer commercial hire purchase, and your accountant can advise whether it suits your circumstances.

Under a commercial hire purchase the lender buys the asset and hires it to you for a fixed term at fixed repayments; ownership passes to you automatically when the final payment, including any balloon, is made. In use it feels much like a chattel mortgage, with the same terms, balloons and asset types, but the legal ownership sits with the lender until the end. It is available for vehicles, machinery and most business equipment.

The main difference is when you own the asset and how GST is treated. With a chattel mortgage you own the asset from day one and can usually claim the GST on the purchase price on your next BAS. With hire purchase the lender owns it until the final payment, and since 2012 GST applies to the whole hire purchase amount, which can be claimed upfront by businesses on an accruals basis. Interest and depreciation are treated similarly. For most businesses today a chattel mortgage is simpler, but some lenders and accountants prefer hire purchase for specific situations.

It can suit businesses that account on an accruals basis and want to claim GST upfront on the full amount, situations where a particular lender offers sharper pricing on hire purchase for a given asset, and cases where keeping legal ownership with the lender until the end is preferred, such as some partnership or trust arrangements. Your accountant confirms whether it helps your position, and your broker compares the pricing against a chattel mortgage on the same asset.

Yes. Balloons of up to 30 to 40 per cent are common on vehicles and machinery with strong resale value, reducing the monthly repayment and leaving a final amount to pay, refinance or clear by selling the asset. Because ownership passes at the final payment, the balloon must be paid before you own the asset outright. Your broker shows the repayment and total cost with and without a balloon.

Interest and depreciation on the asset are generally deductible for the business-use portion, as with a chattel mortgage. Since July 2012, GST applies to the total hire purchase amount including the interest component, and businesses on an accruals basis can generally claim the full GST upfront, while businesses on a cash basis claim it progressively. Confirm the treatment with your accountant, as this is the area where hire purchase and chattel mortgage differ most.

Yes. You can pay out the agreement early and take ownership, and the lender quotes a payout figure on request. Because interest is fixed, an early termination fee or part of the remaining interest usually applies, so the saving is smaller than the full remaining interest. Your broker explains each lender’s early payout terms before you choose.

Cars, utes, vans, trucks and trailers, earthmoving and agricultural machinery, manufacturing plant, commercial kitchen and hospitality equipment, medical equipment and most other business assets with a resale market. New and used assets are both eligible, with the same age limits lenders apply to chattel mortgages.

Low-doc applications for standard assets are often approved within 24 to 72 hours and settled on the supplier invoice. Full-doc applications and larger amounts take a few days longer. If a lender or your accountant has asked specifically for hire purchase, tell your broker so the right lenders are approached from the start.

Use a chattel mortgage when you want to own the asset, claim GST upfront and depreciate it. Use a finance lease when you prefer rental-style payments and expect to upgrade at the end of the term. Use an operating lease when you want to use the asset and hand it back with no residual risk, often with maintenance bundled. Use hire purchase where you want ownership at the end without claiming GST upfront. Your accountant advises on the tax position and your broker matches the structure and the lender.