Choosing between a loan and a lease for your tools and equipment

Every tradie hits the same moment sooner or later: the compressor dies, the old skid steer is costing more in repairs than it earns, or a big job needs a tool you do not own. The cheque for outright purchase is not there, so the question becomes how to pay for it over time.

There are a few ways to do that, and they are not the same thing in practice. This guide explains each in plain language so you can ask better questions before you sign anything.

What are the main ways to pay for tools and equipment?

Here is the lay of the land.

Option	Who owns it during the term	At the end	Typical use
Pay cash	You	You own it	You have the cash and it still earns
Chattel mortgage (secured loan)	You, with the lender holding security	You own it once paid	Machines and tools you plan to keep
Hire purchase	The finance company	Ownership passes after the last payment	Similar to a loan, with different ownership timing
Finance lease	The lessor	Return, extend or buy at an agreed value	Equipment you want to use without owning
Operating lease or rental	The lessor	Return it	Short-term or fast-changing kit
Unsecured business loan	You	You own it	Smaller items, or when you do not want security taken over equipment

Terms and structures vary by lender, so use this table as a map, not a contract.

How does a loan work for equipment?

With a chattel mortgage or hire purchase, you are working towards ownership. You pay regular instalments over an agreed term, and the lender holds some form of security over the equipment until you finish.

Things that matter in practice:

• The term. Match it to how long the equipment will actually earn. A five-year term on a power tool that wears out in three is a poor fit.
• A deposit or balloon. Some structures leave a final payment at the end. That lowers the instalments, but you still have to meet it.
• Insurance. The lender usually expects the equipment to be insured while the finance is running.
• Early payout. Check what it costs to clear the loan early, in case the machine earns faster than expected.

If you want the loan route to be as simple as possible, a straight loan with ownership from the start is the easiest to understand.

How does a lease work, and who owns the gear?

With a lease, the lessor owns the equipment and you pay to use it. At the end there are typically a few choices, and the contract spells out which are available to you.

• Return the equipment and walk away.
• Extend the lease for a further period.
• Buy the equipment at an agreed or market value.

Leases suit gear that dates quickly, or work that is short-term. They can also suit a business that would rather keep borrowing capacity free. The trade-off is that you do not build ownership, and the total paid over time can be higher than a straight purchase. Always read the end-of-term clause, because that is where surprises hide.

Utes, vans and trucks are a separate conversation because vehicle finance has its own structures and providers. See our vehicle finance hub for those.

How do you decide which is right for your situation?

A few questions cut through most of the noise.

1. How long will it earn? If the answer is five years or more, ownership tends to make sense. If it is two years of a specific contract, leasing or short-term finance may fit better.
2. What will it be worth at the end? Machines that hold value favour owning. Gear that is superseded quickly favours leasing or renting.
3. How tight is your cash? Lower instalments help, but a balloon or residual still has to be met.
4. What does your accountant say? Tax treatment can tip the balance.
5. Does it pay for itself? Run the numbers before anything else.

The equipment payback calculator is built for that last question. Put in the cost, what the machine adds each month and the term, and see how long it takes to earn its keep.

What does a payback sum look like?

Here is an illustrative example. A concreter is weighing up a new screed machine that lets the crew finish bigger pours faster. It costs a set amount, and he estimates it saves two labour days a week at current wage costs, plus lets him take on one extra job a month.

He sets out the sum:

• What it adds: the value of the saved labour, plus the margin on the extra jobs.
• What it costs: monthly repayments, insurance and maintenance.
• What is left: the difference each month, and how long until the machine has paid for itself.

If the difference is clearly positive and the machine will last longer than the finance term, the maths works. If the numbers are thin and rely on best-case assumptions, he waits or looks at a cheaper option, perhaps second-hand. Plug in a cautious estimate, not an optimistic one, because kit rarely earns as quickly as hoped in month one.

What about tax and the instant asset write-off?

Tax treatment can change which option is smartest, and the rules shift over time. The ATO publishes the current instant asset write-off threshold and eligibility for small businesses, and whether it applies depends on your turnover, the asset’s cost and when you start using it.

A few general points to take to your accountant:

• Whether you or the lessor can claim depreciation, and how.
• How GST is handled on payments under each structure.
• Whether the write-off applies, and how the timing works relative to 30 June.

Treat anything you read online, including here, as a prompt for that conversation, not a replacement for it. Our tax time survival guide covers how this fits with the rest of the year.

Should you buy new or second-hand?

Second-hand kit can be the smart move, especially for machines that depreciate hard in the first couple of years. The trade-offs are practical rather than mysterious.

• Price against reliability. A cheaper machine that is off the job for repairs can cost more than it saves.
• Finance terms. Lenders often shorten the term as equipment gets older, so repayments can be higher relative to price.
• Where you buy. Buying from a dealer with a history is easier to finance than a private sale with little paperwork.
• Condition evidence. Service records, hours and an inspection report help both you and the lender.

If you are leaning towards used equipment, you can ask about finance for it before you commit to a purchase, so you know the numbers first.

What if your credit file or statements are not perfect?

Equipment finance has an advantage over some other types of lending, because the equipment itself can support the deal. That does not mean anything goes, but past credit issues and untidy statements are considered case by case, and a clear purpose with a solid payback case helps. Tidying your paperwork first still pays off. Our guides on preparing to apply and the equipment finance hub are good places to start.

What should you check before you sign?

Whatever route you choose, run through these.

• The total you will pay over the term, not only the monthly figure.
• Fees: establishment, account keeping and early payout.
• End-of-term options and any final payment.
• Insurance requirements and who is named on the policy.
• What happens if you miss a payment.
• Whether the equipment can be moved between sites, and any restrictions on use.

If something is unclear, ask for it in writing. Reputable providers expect it.

Ready to see what suits your gear?

The easiest way to find out what is available is to ask. The enquiry takes about a minute, and there is no credit check when you enquire, so you can explore options without leaving a mark on your file. Tell us what you want to buy, how you plan to use it and how long it should earn, and we will point you towards the kind of structure that fits.

Your details are not blasted out to a crowd of lenders. A real person reads your situation, thinks about your trade and gets back to you. We do ask that you fill in the form accurately, including anything unusual about the equipment, so the match is right first time.

See if you qualify →