Finance Lease

Finance Lease Australia

A finance lease is a business finance structure where the lender purchases an asset on your behalf and leases it to your business for a fixed term. The lender retains ownership of the asset throughout the lease. You make regular rental payments for the use of the asset, and at the end of the lease term you have the option to purchase the asset for a pre-agreed residual amount, return it to the lender, or extend the lease under new terms.

Finance leases are used across Australian businesses to access vehicles, trucks, heavy machinery, medical equipment, IT infrastructure, hospitality equipment and other commercial assets without the upfront capital outlay of purchasing outright. They are particularly suited to businesses that want to use an asset for a defined period and may want to upgrade at the end of the term, or businesses that prefer to treat the asset as an operating expense rather than a capital purchase on their balance sheet.

Australian Finance & Loans is an independent finance broker with access to over 50 Australian lenders. We arrange finance leases, chattel mortgages, hire purchase agreements and business loans across every asset category. We compare across the full market and recommend the structure that delivers the best outcome for your specific tax position, cash flow requirements and long-term plans for the asset. If a finance lease is not the right fit, we will tell you and suggest the structure that is.

How a Finance Lease Works

In a finance lease, the lender (also called the lessor) purchases the asset from the supplier or dealer. The lender then leases the asset to your business (the lessee) for a fixed term, typically 1 to 5 years. You make regular rental payments, usually monthly, for the duration of the lease. At the end of the term, you choose one of three options: purchase the asset by paying the pre-agreed residual value, return the asset to the lender, or negotiate a new lease arrangement.

The critical distinction between a finance lease and a chattel mortgage is ownership. Under a chattel mortgage, your business owns the asset from day one. Under a finance lease, the lender owns the asset for the entire lease term. This ownership difference has significant implications for tax treatment, balance sheet presentation and your options at the end of the term.

Because the lender owns the asset, a finance lease carries a different risk profile for both parties. The lender has direct recourse to the asset if the business cannot meet its rental obligations, which can result in competitive pricing. The business does not carry the asset on its balance sheet as owned property (though under AASB 16 lease accounting standards, most finance leases must now be recognised on the balance sheet as a right-of-use asset and lease liability for reporting purposes).

Tax Treatment of a Finance Lease

The tax treatment of a finance lease differs fundamentally from a chattel mortgage or hire purchase, and this is the most important factor to understand before choosing this structure.

No Instant Asset Write-Off

Because the lender owns the asset under a finance lease, your business cannot claim depreciation or the instant asset write-off. The depreciation deduction belongs to the asset owner, which is the lender. If your goal is to claim the $20,000 instant asset write-off before 30 June 2026, a finance lease is not the right structure. You need a chattel mortgage or hire purchase instead, where your business takes ownership from settlement. For a detailed comparison of how each structure interacts with the write-off, see our equipment finance options guide.

GST on Lease Payments

Under a finance lease, GST is included in each rental payment rather than being claimable as a single upfront input tax credit. If your business is registered for GST, you claim a GST credit on each rental instalment as it is paid. This spreads the GST recovery across the full lease term rather than delivering it as a lump sum on the first BAS after settlement, which is what occurs under a chattel mortgage.

Rental Payments as a Deduction

The rental payments under a finance lease are generally deductible as a business expense, similar to any other operating cost. The deduction is the full rental amount (excluding GST for GST-registered businesses) in the period it is incurred. This is different from a chattel mortgage, where the deductions are split between interest (deductible over the loan term) and depreciation (deductible based on the asset's effective life or the instant write-off).

When the Tax Treatment Favours a Finance Lease

A finance lease can be tax-advantageous for businesses that are not eligible for the instant asset write-off (for example, businesses with turnover above $10 million, or assets above the write-off threshold), businesses that prefer to spread their deductions evenly over the lease term rather than claiming a large upfront depreciation deduction, and businesses that want to match their tax deductions to their cash outflows on a period-by-period basis. However, for most small businesses purchasing assets under $20,000 where the instant write-off applies, a chattel mortgage will typically deliver a better first-year tax outcome. Always confirm the optimal structure with your accountant before committing.

Finance Lease vs Chattel Mortgage

Finance Lease

The lender owns the asset throughout the lease term. You cannot claim depreciation or the instant asset write-off. GST is claimed progressively on each rental payment. Rental payments are deductible as an operating expense. At the end of the lease, you can purchase the asset for the residual value, return it, or extend the lease. Suits businesses that want flexibility to upgrade, do not want to commit to long-term ownership, or prefer to match deductions to cash outflows.

Chattel Mortgage

You own the asset from day one. You can claim depreciation and the instant asset write-off (if eligible). GST is claimable as a lump sum upfront on your next BAS. Interest is deductible over the loan term. At the end of the term, you own the asset outright (or pay the balloon). Suits businesses that want to maximise upfront tax deductions, intend to keep the asset long-term, and want ownership from settlement. See our chattel mortgage page for full details.

Finance Lease vs Operating Lease

A finance lease and an operating lease are both leasing structures, but they serve different purposes and have different end-of-term outcomes.

A finance lease is a longer-term arrangement (typically 2 to 5 years) used for assets with a longer useful life. You bear the risks and benefits of the asset during the lease, including maintenance and insurance costs. At the end of the lease, you have the option to purchase the asset for the residual value. A finance lease is most common for vehicles, trucks, heavy machinery and long-life commercial equipment.

An operating lease is a shorter-term rental arrangement (typically 1 to 3 years) used for assets that depreciate quickly or need to be upgraded frequently. The lender typically covers maintenance and may include other services in the rental cost. At the end of the lease, you return the asset with no further obligations and no purchase option. An operating leases suits IT equipment, POS systems, office technology and other assets where regular upgrades are essential. See our IT and technology loans page for options in this space.

What Assets Can Be Financed With a Finance Lease

A finance lease can be used for any moveable business asset. The most common asset categories include:

Vehicles: new cars, used cars, utes, vans, trucks and trailers, fleet vehicles, electric vehicles and forklifts.

Heavy machinery and construction: excavators, loaders, graders, dozers, cranes and earthmoving equipment. See our heavy machinery loans and builder and construction loans pages.

Manufacturing and engineering: CNC machines, lathes, presses, laser cutting machinery, welding equipment, air compressors and manufacturing plant.

Medical and dental: imaging systems, dental chairs, sterilisation equipment, patient monitoring devices and practice fit-out items. See our medical equipment loans page.

Agriculture: tractors, harvesters, irrigation systems and general farming and agriculture equipment.

IT and technology: servers, workstations, networking hardware, POS systems and cybersecurity infrastructure. See our IT and technology loans page.

Hospitality: commercial ovens, fridges, dishwashers, coffee machines, food trucks and kitchen fit-outs. See our hospitality and catering loans page.

Finance Lease Rates in Australia

Finance lease rates are individually assessed based on the borrower's business profile, the asset type and the lease structure. As a general guide for 2026, rates across our panel of 50+ lenders sit within the following ranges.

New vehicles for established businesses with clean credit: approximately 7.00% to 10.00% per annum. Used vehicles under 10 years old: approximately 8.00% to 12.00% per annum. New equipment and machinery: approximately 7.50% to 11.00% per annum. Used or specialist equipment: approximately 9.00% to 15.00% per annum. Low-doc finance leases: approximately 10.00% to 17.00% per annum.

Finance lease rates are typically marginally higher than chattel mortgage rates for equivalent borrowers and assets because the lender retains ownership risk throughout the term. The rate difference is usually 0.5% to 1.5% per annum. We compare across our full panel of 50+ lenders to identify the most competitive finance lease rate for your specific profile.

The Residual Value

Every finance lease has a residual value (also called a balloon) set at the start of the lease. The residual is the amount payable if you choose to purchase the asset at the end of the lease term. The residual is agreed between you and the lender at the outset and typically ranges from 10% to 40% of the original asset value, depending on the asset type, expected useful life and the lease term.

Setting a higher residual reduces your regular rental payments during the lease, which improves cash flow. However, it also means a larger lump sum is due at the end if you choose to purchase the asset. For assets that hold their value well (trucks, quality earthmoving plant, commercial vehicles), a residual of 20% to 35% is common and manageable. For assets that depreciate quickly (IT equipment, older technology), a lower residual of 10% to 20% avoids the risk of owing more than the asset is worth at the end of the lease.

If you choose not to purchase the asset at the end of the lease, you return it to the lender in reasonable condition and the residual obligation falls away. This flexibility is one of the key advantages of a finance lease over a chattel mortgage, where the balloon must be paid, refinanced or covered through a sale regardless.

Who Is a Finance Lease Best For

A finance lease is typically the right structure for businesses that want to use an asset for a defined period and may want to upgrade to newer equipment at the end of the term, businesses that prefer not to commit to long-term ownership of a depreciating asset, businesses where the asset technology changes rapidly and regular replacement is planned, fleet operators who rotate vehicles on a fixed cycle, businesses with turnover above $10 million that are not eligible for the simplified depreciation rules and instant asset write-off, and businesses that prefer to match their tax deductions to their rental cash outflows rather than claiming a large upfront depreciation deduction.

For businesses that want to own the asset, maximise upfront tax deductions, claim the instant write-off, and recover the full GST immediately, a chattel mortgage is almost always the better structure.

Finance Lease Details

Lease amounts: from $5,000 to $2,000,000 and above depending on the asset and the business profile. The most common finance lease amounts range from $30,000 to $500,000 for vehicles and equipment.

Lease terms: 1 to 5 years. The most common terms are 2 to 5 years. Shorter terms result in higher rental payments but lower total cost. Longer terms reduce rentals but increase the total cost of the lease.

Residual values: typically 10% to 40% of the original asset value depending on the asset type, expected useful life and the lease term. Higher residuals reduce rental payments but create a larger end-of-term obligation.

Deposit: not always required. Many lenders offer no-deposit finance leases for new assets purchased from a dealer. A deposit can reduce your rental payments and may improve your approval chances for low-doc or higher-risk applications.

Approval speed: 24 to 48 hours for standard applications with complete documentation. Same-day conditional approvals available from select lenders. Complex applications requiring full financials may take 5 to 15 business days.

Repayment frequency: monthly is the most common. Some lenders offer quarterly, seasonal or structured repayment schedules aligned with your business cash flow patterns.

The Application Process

Getting a finance lease through Australian Finance & Loans follows the same straightforward process as all our business finance products.

Call 1300 194 926, email info@australianfinanceloans.com or book a call through our website. Tell us the asset you need, the approximate cost, and a little about your business. We assess your situation against our panel of over 50 lenders and recommend the most appropriate structure and lender for your specific circumstances, whether that is a finance lease, a chattel mortgage, a hire purchase or another product. We then manage the full application through to settlement.

Frequently Asked Questions About Finance Leases in Australia

What is a finance lease in simple terms?

A finance lease is a business arrangement where a lender buys an asset and leases it to your business for a fixed term. You make regular rental payments for the use of the asset. At the end of the lease, you can buy the asset for a pre-agreed residual amount, return it, or extend the lease. The lender owns the asset throughout the lease term.

What is the difference between a finance lease and a chattel mortgage?

Ownership. With a chattel mortgage, you own the asset from day one and can claim the instant asset write-off, upfront GST credit and depreciation deductions. With a finance lease, the lender owns the asset and you cannot claim the write-off or upfront GST. Your deduction is the rental payment itself. If maximising upfront tax deductions is your priority, a chattel mortgage is almost always the better choice. If flexibility to return or upgrade the asset at the end of the term matters more, a finance lease may be the better fit.

Can I claim the instant asset write-off on a finance lease?

No. The instant asset write-off requires the business to own the asset. Under a finance lease, the lender owns the asset, so the write-off is not available to you. If claiming the write-off before 30 June 2026 is your goal, you need a chattel mortgage or hire purchase instead.

Is the rental payment on a finance lease tax deductible?

Yes. The rental payments (excluding GST for GST-registered businesses) are generally deductible as a business expense in the period they are incurred, provided the asset is used for business purposes. This is a different structure from a chattel mortgage, where deductions are split between interest and depreciation.

What happens at the end of a finance lease?

You have three options. Purchase the asset by paying the pre-agreed residual value. Return the asset to the lender in reasonable condition, and the residual obligation falls away. Or negotiate a new lease arrangement, either on the same asset or a replacement. Most businesses either purchase the asset or upgrade to a newer model through a new lease.

Do I need a deposit for a finance lease?

Not always. Many lenders offer no-deposit finance leases for new assets purchased from a licensed dealer. A deposit can reduce your rental payments and may improve approval chances, particularly for used assets, private sales or low-doc applications.

What interest rates are available on finance leases?

Finance lease rates across our panel range from approximately 7.00% per annum for well-qualified borrowers financing new vehicles, through to 17.00% per annum for low-doc or higher-risk applications. Rates are typically marginally higher than equivalent chattel mortgage rates because the lender retains ownership risk. We compare across 50+ lenders to find the most competitive rate for your specific profile.

Can I get a finance lease with bad credit?

Yes. Several specialist lenders on our panel consider finance lease applications from borrowers with defaults, missed payments or other credit impairments. Rates are higher for impaired credit applications but finance is available. See our bad credit finance guide for more detail.

Is a finance lease the same as an operating lease?

No. A finance lease is a longer-term arrangement where you bear the risks and benefits of the asset and have the option to purchase it at the end. An operating lease is a shorter-term rental where the lender typically covers maintenance, and you return the asset at the end with no purchase option. A finance lease suits long-life assets. An operating lease suits assets that need frequent upgrading.

How does AASB 16 affect finance leases?

Under AASB 16 Leases, most finance leases must be recognised on the lessee's balance sheet as a right-of-use asset and a corresponding lease liability. This accounting standard, which applies to reporting entities, changed the traditional "off-balance-sheet" advantage of leasing. The practical impact depends on your business's reporting obligations. For small businesses not required to prepare general purpose financial statements, the impact may be minimal. Your accountant can advise on how AASB 16 applies to your specific situation.

Can a sole trader get a finance lease?

Yes. Sole traders with an active ABN can enter a finance lease. The asset must be used predominantly for business purposes. Sole traders are assessed on their combined personal and business financial profile. Most lenders require a minimum of 6 to 12 months of ABN trading history.

What assets can I finance with a finance lease?

Any moveable business asset including cars, utes, vans, trucks, trailers, fleet vehicles, electric vehicles, forklifts, excavators, loaders, cranes, CNC machines, lathes, laser cutters, welders, air compressors, medical equipment, dental equipment, agricultural machinery, IT hardware, POS systems, hospitality equipment, food trucks, tools, drones, robotics and marine vessels.

How long does a finance lease take to get approved?

For standard applications with complete documentation, approval typically takes 24 to 48 hours. Settlement follows within a few business days after approval. Same-day conditional approvals are available from some lenders. Complex applications requiring full financials may take 5 to 15 business days.

What documents do I need for a finance lease?

For a standard application: ABN and GST registration details, 3 to 6 months of business bank statements, photo ID for the director, the asset quote or invoice, and details of any existing loans or leases. For low-doc applications, bank statements and BAS lodgements are the primary evidence. For larger leases, lenders may also require financial statements and tax returns.

Why Choose Australian Finance & Loans for Your Finance Lease

Independent broker: we compare finance leases, chattel mortgages, hire purchase and operating leases across 50+ lenders. We recommend the structure that delivers the best outcome for your specific situation, not the one that pays us the highest commission.

Honest about the trade-offs: we explain the tax differences between a finance lease and a chattel mortgage clearly. If a chattel mortgage would give you a better first-year tax outcome, we tell you. If a finance lease suits your upgrade cycle and cash flow better, we tell you that too.

Every asset type covered: vehicles, trucks, earthmoving, manufacturing, medical, agricultural, IT, hospitality, tools, marine and specialist equipment.

Fast approvals: 24 to 48 hours for standard applications. Same-day conditional approvals available from select lenders.

Low-doc and bad credit specialists: we know which lenders accept bank statements and BAS as primary evidence, and which consider applications from borrowers with impaired credit.

50+ lenders through the COG Aggregation network, part of ASX-listed COG Financial Services (ASX: COG), Australia's largest asset finance broker network.

Melbourne-based team with national reach across all states and territories.

Call 1300 194 926, email info@australianfinanceloans.com or book a call to get started.