Chattel mortgage vs novated lease: which suits you?
Two of the most common ways to finance a vehicle, explained simply, and how to tell which one fits your situation.
By Hayden Gemmill, Fund 360 · 6 October 2026
If you're buying a car, ute or van, two options come up again and again: a chattel mortgage and a novated lease. They work very differently, and the right one depends mostly on how you earn your income and how you'll use the vehicle.
What is a chattel mortgage?
A chattel mortgage is a business loan for a vehicle or piece of equipment. You own the vehicle from day one, and the lender takes security over it until the loan is paid off. Repayments are usually fixed, and you can add a balloon payment at the end to lower them.
It's the most common choice for sole traders, partnerships and companies that use the vehicle mainly for business. Depending on your situation, there may be tax benefits such as claiming GST on the purchase price, interest and depreciation, so it's worth checking with your accountant.
What is a novated lease?
A novated lease is a three way agreement between you, your employer and a finance provider. Your employer makes the lease payments out of your salary, with part coming from your pre tax income. Depending on the provider, you can also bundle running costs like fuel, servicing, tyres, rego and insurance into the same payment. A director's wage novated lease doesn't include running costs.
It suits employees whose employer offers salary packaging, and company directors who pay themselves a wage through their own company. Eligible electric vehicles may also be exempt from fringe benefits tax, which can increase the savings. At the end of the lease there's a residual payment set by ATO guidelines.
The key differences
| Chattel mortgage | Novated lease | |
|---|---|---|
| Best suited to | Business owners using the vehicle for work | Employees and company directors paid a wage |
| Who owns it | You, from day one | The finance provider, until you pay the residual |
| How it's paid | Directly from your business | From your salary, partly pre tax |
| Running costs | Paid separately as you go | Can often be bundled in, depending on the provider |
| End of term | Optional balloon payment | Residual payment set by ATO guidelines |
So which one suits you?
- Self employed or running a business, and the vehicle is mainly for work: a chattel mortgage is usually the place to start.
- An employee and your employer offers salary packaging: a novated lease is worth comparing.
- A company director paying yourself a wage: you may be able to choose either, so it's worth comparing both.
Want to know what you could be approved for?
Free, no obligation quote. No impact on your credit file.
This guide is general information only and doesn't take into account your objectives, financial situation or needs. It isn't financial, tax or legal advice. Talk to us about your situation, and to your accountant about tax.