Key takeaways
- What happens depends on your finance structure: a chattel mortgage, finance lease and hire purchase each reach term end differently, and the options available to you are set by which one you signed.
- Chattel mortgage gives you three moves: pay out any balloon, refinance it, or sell the asset and use the proceeds to clear it.
- Finance lease gives you three different moves: buy the asset for its residual value, return it, or renew into a new lease.
- Hire purchase usually ends with ownership transferring once the final instalment, including any agreed balloon or final payment, is paid.
- Worth checking alongside your term-end decision: payday super from 1 July 2026 means super now leaves your account every payday rather than quarterly, which can change how a term-end lump sum lands against your broader cash flow.
The day your equipment finance term ends is not the day the equipment relationship ends, it is the day you have to make a decision, and the decision available to you depends entirely on which structure you signed up for years earlier. Businesses are sometimes surprised at this point that their options are narrower, or wider, than they expected. Here is exactly what happens at the end of a chattel mortgage, a finance lease and a hire purchase agreement, and how to plan for it properly.
Three structures, three different endings
| Structure | Who owns the asset during the term | What happens at term end |
|---|---|---|
| Chattel mortgage | Your business, from day one | Pay the balloon, refinance it, or sell the asset to cover it |
| Finance lease | The lender | Buy for the residual value, return the asset, or renew the lease |
| Hire purchase | The lender, until the final payment | Ownership usually transfers once the final instalment, including any agreed balloon or final payment, clears |
Chattel mortgage: pay, refinance, or sell
Under a chattel mortgage, your business has owned the asset from day one, so term end is really just about clearing whatever balloon payment was agreed at settlement. You have three practical options. Pay the balloon out in full using cash reserves, which fully discharges the loan and leaves you owning the asset outright with no further finance attached. Refinance the balloon into a new facility, which converts the lump sum into a fresh series of manageable repayments if paying cash is not realistic. Or sell or trade in the asset and use the proceeds to clear the balloon, which works well if you were always planning to upgrade at this point anyway.
Finance lease: buy, return, or renew
A finance lease works differently because the lender has held legal ownership throughout the term. At the end, you typically choose between purchasing the asset by paying its residual value, returning the asset, subject to the lease terms, condition requirements and any remaining obligations, or renewing into a new lease on the same or a newer asset. This structure suits businesses that value the flexibility to upgrade regularly more than they value building ownership equity, since handing the asset back is a genuine option if the equipment no longer suits your needs, provided it meets the condition requirements set out in your agreement.
Hire purchase: ownership usually transfers at the end
Hire purchase sits between the two. You hire the asset throughout the term and make instalment payments, and ownership transfers to you once the final payment clears, including any balloon or final payment agreed as part of the contract. Depending on how the agreement is structured, this can remove the separate purchase decision that a lease requires, though it still means budgeting for that final amount just as you would with a chattel mortgage balloon. It also means you generally cannot walk away the way you can with a lease if your needs have changed by the time the term ends.
A practical example
A Brisbane transport company's five-year chattel mortgage on a prime mover is approaching term end with a 60,000 dollar balloon. The truck has held its value better than expected, and a trade-in quote comes in above the balloon figure, so the business trades it against a newer model, clears the balloon entirely through the trade value, and rolls straight into a new finance term on the replacement vehicle. Because the business started requesting valuations three months out rather than waiting for the final invoice, it had time to compare trade-in offers against a straight refinance of the balloon, and chose whichever option left more cash in the business.
A pre-term-end checklist
- Start 1 to 2 months before the term ends, not in the final weeks, so you have time to compare options properly.
- Get a real resale or trade-in valuation for the asset rather than assuming the balloon figure reflects current market value.
- Request a payout figure from your current lender so you know the exact amount required to close the facility.
- Map the due date against other cash flow commitments. One secondary factor worth a check from 1 July 2026: payday super changes how super leaves your account, moving from a predictable quarterly outflow to a payment every payday, which can affect how a term-end lump sum lands against your broader cash flow.
- Compare refinancing the balloon against paying cash or trading the asset, since the cheapest option depends on your specific numbers, not a default assumption.
Frequently asked questions
How do I know which structure my finance is under?
Check your original finance agreement or ask your broker or lender directly. The document will specify whether you signed a chattel mortgage, finance lease or hire purchase, and this determines exactly which options are available to you at term end.
Can I change my mind after choosing an end-of-term option?
Generally no, once an option is actioned, such as paying out a balloon or handing back a leased asset, it is difficult to reverse. This is exactly why starting the conversation 1 to 2 months out matters, so you have time to weigh the options properly before committing.
What if my asset is worth less than expected at term end?
This is more common with fast-depreciating assets or unexpectedly high usage. If a trade-in or sale value comes in below the balloon amount, refinancing the shortfall is usually the fallback option, which is another reason to get a valuation early rather than assuming the balloon figure still reflects market value.
Can I be charged extra for returning a leased asset?
Yes, in some cases. Returns are subject to the lease terms and condition requirements set out in your agreement, and excessive wear, damage or usage beyond agreed limits can trigger additional charges, so it is worth reviewing your contract's condition clauses before assuming a clean handback.
How far ahead should I start planning for term end?
Start 1 to 2 months before the term ends. This gives you time to get a real valuation, request a payout figure, and compare refinancing against selling or trading, rather than making a rushed decision in the final weeks.
What matters most
The businesses that handle term end smoothly are the ones who treat it as a decision to plan for, not a bill that arrives. Knowing which structure you are in, and starting the conversation with your lender or broker well before the final invoice lands, is what turns a term-end balloon from a scramble into a straightforward choice between a small number of clear options.
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