What is a chattel mortgage?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
A chattel mortgage is a type of finance in which a business borrows to buy an asset, such as a vehicle or piece of equipment, and owns it from the start. The lender holds a mortgage over the asset as security until the loan is repaid through regular payments, sometimes with a final balloon payment.
Chattel means movable property, as opposed to land and buildings, and the mortgage is the lender's claim over that property if the payments stop. Because the business is the owner from day one, a chattel mortgage differs from hire purchase, where ownership passes only with the final payment, and from a lease, where the leasing company remains the owner.
In the books, a chattel mortgage usually appears in two places: the asset the business now owns, and the loan it owes the lender. Each payment is split, using the lender's statement, into the interest charged and the part that reduces the loan balance, and any balloon stays in the loan balance until it is paid. How the asset and the finance charges are treated in the accounts is a question for your accountant.
In Australia
business.gov.au's glossary likens a chattel mortgage to a hire purchase agreement, with the difference that the business owns the asset from the start. It notes that a chattel mortgage involves regular ongoing payments and typically offers the option of lowering them with a final balloon payment.
Its guide to choosing funding describes a chattel mortgage as borrowing from a lender to own an item, and lists it among the funding options for starting or buying a business and for buying vehicles, equipment or tools. Its guide to business loans notes that when you borrow to buy an asset such as a vehicle or equipment, you can often use that asset as security, and its page on leasing or buying vehicles warns that a vehicle used to secure a loan can be repossessed if the repayments are not made.
Worked example
| Part of the payment | Amount (AUD) |
|---|---|
| Interest charged for the month, from the lender's statement | 212.50 |
| Reduction in the loan balance | 687.50 |
| Total monthly payment | 900.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Recording the full monthly payment as an expense, so the loan balance in the books never goes down.
- Leaving the asset out of the books because the lender holds a mortgage over it, even though the business owns it.
- Treating a chattel mortgage like a lease and recording the payments as rent.
Related terms
Related service
Small business bookkeeping
Your books kept current, every month.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Choose your funding
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Apply for a business loan
business.gov.au, Australian Government. Current at 16 October 2026, released 18 February 2026. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Leasing or buying vehicles and equipment
business.gov.au, Australian Government. Current at 16 October 2026, released 23 October 2024. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.