Want to compare a novated lease against a chattel mortgage?
Depending on your situation there are a few different ways you can purchase a new car:
- You could buy it outright
- You can take out a car loan
- You can finance it through your dealership
- You can finance it as an asset for your business
However, one of the best options is a novated lease or ‘salary packaging’ a car.
See how this compares below.
Novated lease vs Chattel Mortgage
A novated lease and chattel mortgage are used to finance vehicles, but each has certain benefits or uses more suitable for specific situations than the other:
Ownership
Novated leasing allows full personal use and ownership of the vehicle at the end of the lease, while a vehicle obtained through a chattel mortgage is owned by a business, registered as an asset, and must be used for business purposes at least 51% of the time.
GST Benefits
Both a novated lease and chattel mortgage offer specific GST and tax benefits; employees benefit from a novated lease, while a business or sole trader will benefit from a chattel mortgage.
Restrictions
Novated leasing is only used for passenger vehicles with a maximum payload of 1,000 kg, chattel mortgages are used for all types of vehicles and business machinery.
While either of these two options can be used to finance a vehicle, you’ll want to compare each option to make sure you’re making the right choice:
- Novated lease - Provides GST and tax benefits. The vehicle can be used for personal and business purposes. Finance a vehicle between $5,000 and $150,000 for between six months and five years.
- Chattel Mortgage - Provides GST benefits. The vehicle must be used for business purposes at least 51% of the time. Finance 100% of the vehicle price (with no set limit) for between two and five years.
You can learn more about novated leasing and get jargon-free answers to some of the most common questions in our novated leasing explained guide.
Novated Lease vs Chattel Mortgage Compared
Novated Lease
A novated lease is only used by employees who are paid a salary, or business owners who pay themselves a salary from their own company:
- A novated lease includes the cost to finance a vehicle and the associated running costs, which are estimated by the novated lease finance company.
- Provides immediate GST benefits and ongoing tax benefits.
- Vehicles must be a passenger vehicle with a maximum payload of 1,000 kg.
- There are no limitations on how the vehicle is used.
- The borrower must be paid a salary - novated lease payments are deducted from the employee’s salary in agreement with the employer.
- The borrower takes full ownership of the vehicle at the end of the lease.
- The vehicle can be used for personal use, business use, or a combination of the two.
Chattel Mortgage
A chattel mortgage is a type of vehicle finance used by **sole traders and businesses to purchase a vehicle:
- Offers similar GST benefits as a novated lease but does not provide the same tax benefits
- Greater vehicle choice than a novated lease
- Can be used to purchase company cars or delivery vehicles and heavy machinery.
- Vehicle must be used for business purposes at least 51% of the time.
- The borrower must be a sole trader, or operating a business.
- The business takes full ownership of the vehicle and is listed as a business asset.
- The vehicle must be used for business purposes at least 51% of the time, however can be used as a personal vehicle as well.
