Your Finance GuideAustralian finance education
By Your Finance Guide Team7 min read

Hire Purchase, Explained

Hire purchase used to be the standard SME equipment finance product in Australia. Through the 2010s and 2020s it has been largely displaced by chattel mortgage, which offers similar tax treatment with cleaner legal-title mechanics. HP still exists, and there are specific situations where it remains the right fit. This guide walks through how it works, where it differs from chattel mortgage and operating lease, and when it is worth considering today.

Key Takeaways
  • Hire purchase keeps legal title with the lender until the final payment, when title transfers to you.
  • Tax treatment is the same as chattel mortgage: you claim depreciation and interest from day one.
  • Full GST on the purchase price is claimable up front on the next BAS.
  • Largely replaced by chattel mortgage for typical SMEs, but still offered for specific asset classes and risk profiles.
  • Most useful where the lender prefers a stronger legal-title position, or where the asset class fits an HP-only product.

How hire purchase works

The mechanics: the lender (called the "owner" or "financier" in HP documentation) acquires the asset and hires it to you (the "hirer") for an agreed term, typically 2 to 7 years. You make scheduled payments of principal and interest, often with a balloon at the end. At the final payment, legal title transfers to you and the asset is yours.

During the term, you have full possession and use of the asset. You insure it, you maintain it, you operate it as your own. The hire-purchase contract sets out the rights and obligations, including what happens if you default (the lender can repossess, with statutory protections) and what happens if you want to pay out early (subject to break fees in some contracts).

Tax and accounting position

For tax purposes, hire purchase is treated as a purchase from day one. You claim depreciation on the asset using the relevant ATO effective life (or the simplified depreciation method as a small business entity). You claim the interest portion of repayments. You claim the full GST on the purchase price up front on the next BAS.

The instant asset write-off applies in the same way as for a chattel mortgage: an eligible asset under the threshold ($20,000 in 2025-26 for SMEs with aggregated turnover under $10 million), first used or installed by 30 June 2026, can be fully written off in the year of purchase.

Hire purchase vs chattel mortgage

The two products are tax-equivalent. The cash-flow profile, the GST treatment, the depreciation outcome, and the interaction with the instant asset write-off are the same. The difference is in legal title and the mechanism for security.

  • Chattel mortgage: You own the asset on day one. Lender registers a security interest on the PPSR, removed when the loan is paid out. Repossession in default is more procedurally involved.
  • Hire purchase: Lender owns the asset until final payment. Title transfers to you at the end. Repossession in default is structurally simpler because the lender already has title.

For most owner-operated SMEs, the cleaner legal-title position of chattel mortgage is preferred. For some asset classes (heavy commercial vehicles, primary production equipment) and some risk profiles (newer businesses, weaker bank-statement credit), an HP-style product still appears in lender panels.

Hire purchase vs finance lease

Finance lease and HP look superficially similar (the lessor or financier owns the asset during the term, you have use). The tax treatment is materially different. Under HP, you are treated as the tax owner from day one. Under finance lease, the lessor is the tax owner; you claim lease payments as deductible expenses but cannot claim depreciation on the asset.

For an SME that wants the tax position of ownership (depreciation, write-off, full GST claim up front), HP fits and finance lease does not. For an SME that wants the simpler accounting treatment of leasing and is comfortable not claiming depreciation, finance lease can be the cleaner answer.

When HP still makes sense

  • The lender only offers HP for the asset class: Some specialist lenders only run HP product for heavy commercial, certain medical equipment, or primary production equipment. The product fit dictates the structure.
  • Newer business or weaker credit: The stronger legal-title position can mean the difference between approval and decline. HP gets some borrowers across the line where chattel mortgage would not.
  • Existing relationship with an HP-led lender: If you have a working relationship with a lender that runs HP, the renewal and approval friction is usually lower than switching to a chattel-mortgage lender.
  • Specific tax structure already aligned to HP: Rare, but some accountants prefer HP for specific entity structures or asset classes.
Before you sign HP
  • Confirm the loan amount, term, balloon size, and total interest in writing
  • Get the comparison rate at your exact amount and term
  • Check the early-payout policy and any break fees
  • Confirm title transfer mechanics at end of term
  • Compare against a chattel mortgage quote for the same asset before deciding

WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are based on a secured loan of $30,000 over 5 years for vehicle finance and $50,000 over 5 years for equipment finance, as required under the National Credit Code.

Hire Purchase FAQs

Common questions about hire purchase finance for Australian SMEs in 2026.

Who actually owns the asset under hire purchase?
The lender (financier) owns the asset during the term. You have full possession and use, but legal title only transfers to you when the final payment is made. For tax purposes, you are treated as the owner from day one and can claim depreciation and interest, but for legal title purposes you do not own the asset outright until the end.
How does HP differ from chattel mortgage?
Both products are tax-equivalent (you claim depreciation and interest). The difference is in legal title. Chattel mortgage gives you legal ownership from day one with the lender holding a registered security. Hire purchase keeps legal ownership with the lender until final payment. For most modern SMEs the practical difference is small, which is why chattel mortgage has largely replaced HP.
Is hire purchase still offered in Australia?
Yes, but it is now a niche product. Some lenders offer HP for specific asset classes (heavy commercial vehicles, certain industrial equipment), and some prefer HP for new entities or higher-risk borrowers because the legal title position is stronger. For the typical owner-operated SME buying equipment, chattel mortgage is the default.
Can I claim GST on a hire purchase asset?
Yes, the full GST on the purchase price is claimable up front on the BAS in the period the asset is acquired, the same as a chattel mortgage. This is because for GST purposes, hire purchase is treated as an outright sale at the start of the term.
Can the lender repossess the asset under HP?
Yes, more easily than under a chattel mortgage. Because the lender retains legal title, repossession in default is structurally simpler. This is part of why HP is sometimes preferred by lenders for higher-risk borrowers, and why borrowers with strong credit usually prefer chattel mortgage.
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