Quick answer
You can upgrade equipment before its finance ends in four main ways: pay out the old contract and trade the asset in, keep the old asset and finance the new one alongside it, use an upgrade option built into a lease, or fund the changeover with a property-secured loan. Which works best depends on how much is still owed, what the old asset is worth and whether the business can carry both repayments.
Key points
- Start with the payout figure and an honest trade-in value; the gap between them drives everything.
- Rolling old debt into new finance is possible with some lenders but makes the new deal harder.
- Keeping both assets means a lender assesses both repayments together.
- Some leases have upgrade options; read the contract before you shop.
- For tax, the ATO measures an asset's cost before any trade-in credit.
You don’t have to wait for the last repayment to upgrade. Businesses usually do it one of four ways: pay out the old contract and trade the asset in, keep the old asset and finance the new one too, use an upgrade option in a lease, or fund the changeover with a loan secured by property. The right one depends on what you owe and what the old gear is worth.
Growth rarely lines up neatly with a five-year finance term. A printer that was plenty two years ago can’t handle the new client. A single-axle truck can’t carry the new loads. The finance contract doesn’t know that, so you need a plan that deals with both machines.
What two numbers should you get before anything else?
Before you talk to a dealer, get:
- The payout figure for the old contract as at a realistic changeover date. Ask your lender for it itemised, including any balloon and early termination fee. Our guide to paying out a chattel mortgage early explains what’s inside it.
- An honest value for the old asset. Ask the dealer for a trade-in figure, and check what similar equipment actually sells for privately or at auction. Trade-in offers are often lower than private sale prices, but they’re quicker and simpler.
The gap between those numbers is what matters. If the old asset is worth more than the payout, you have equity to put towards the upgrade. If it’s worth less, you have a shortfall to deal with. Everything else follows from that.
Option 1: Pay out and trade in
This is the cleanest path when the old asset has equity in it. The dealer values the trade, pays your lender directly, and any surplus comes off the price of the new machine. You then finance the new asset on its own contract.
Suits: businesses whose old asset is worth at least what’s owed, and who don’t need it any more.
Watch for: early termination fees on the old contract, and a trade-in price that’s well below market. If the gap is big, selling privately and paying out yourself may net more, though it takes longer. Our guide to selling equipment that still has finance owing walks through a private sale.
Option 2: Keep the old asset and add the new one
Sometimes the old machine still has work to do: as a backup, on a second site or for a different type of job. In that case you keep the existing contract running and apply for equipment finance on the new asset.
Suits: businesses with enough work for both, or where downtime on a single machine is costly.
Watch for: affordability. A lender assesses both repayments together, alongside your other commitments. Bank statements that show the business is already busy, plus a contract or purchase orders that need the extra capacity, make the case much easier.
Option 3: Use an upgrade clause in a lease
Some leases, especially for technology, printers and some vehicles, are written with upgrading in mind. The financier may let you hand back the old asset and start a new lease on the replacement, with the remaining commitment folded in or settled.
Suits: businesses on a finance or operating lease for assets that date quickly.
Watch for: what happens to the money left on the old lease. It doesn’t disappear, so ask for the numbers in writing. business.gov.au notes that with leasing you “may need to make payments for the full lease period” even if you stop using the equipment (leasing or buying vehicles and equipment), so read the early-exit terms before you choose the new model.
Option 4: Fund the changeover with property
Where the shortfall is large, or the business wants to clear several asset contracts at once and start fresh, a loan secured by residential or commercial property can pay out the old contract and fund part or all of the new asset. Property-secured business loans run from $20k to $5m.
Suits: owners with property equity, a sizeable shortfall, or a plan that involves more than one asset.
Watch for: the term. Paying for a machine over a property loan’s term can mean still paying for it after you’ve replaced it again, so match the repayment plan to the asset’s working life.
If you can’t tell which of these fits, a quick enquiry gets a real person looking at the numbers with you, with no credit check at that stage.
What about rolling the shortfall into the new finance?
It’s the question everyone asks. Some asset lenders will consider adding negative equity from the old contract to the new one. The catch is that you’re then borrowing more than the new asset is worth on day one, which is exactly the situation asset lenders are built to avoid.
Expect one or more of these if you ask:
- a deposit to bring the loan back towards the asset’s value;
- a shorter term;
- extra security, such as a second asset or property;
- a closer look at your trading and credit history.
It can work, but it’s usually cheaper and simpler to clear the shortfall separately, even with a small unsecured facility. Unsecured and cash-flow options for trading businesses typically run from $5k to $500k.
How does the tax side of an upgrade work?
Two quick points to take to your accountant.
The trade-in doesn’t shrink the cost. The ATO’s instant asset write-off guidance says trade-ins are measured using the purchase price before any trade-in credit. So a $28k machine with an $11k trade-in is still a $28k asset for the threshold test.
The threshold is now permanent. The ATO has confirmed the $20,000 instant asset write-off is here to stay for businesses with aggregated turnover under $10 million, claimed in the year the asset is first used or installed ready for use. Larger assets go into the small business pool.
Selling or trading the old asset also triggers a balancing adjustment, so ask your accountant to work out both sides of the changeover together.
Comparing the four options
| Option | Best when | Main risk | What a lender focuses on |
|---|---|---|---|
| Pay out and trade in | Old asset is worth more than the payout | Low trade-in price | The new asset and your trading |
| Keep both | You have work for both machines | Two repayments at once | Affordability across all commitments |
| Lease upgrade clause | Asset dates quickly and the lease allows it | Remaining commitment rolled forward | The new lease and the old balance |
| Property-secured changeover | Large shortfall or several contracts | Paying for gear longer than you use it | Property equity and the overall plan |
An illustrative example
Illustrative only. A print shop financed a wide-format printer under a chattel mortgage three years ago. A new signage client needs faster output and wider media than the old printer can handle.
The payout figure is about $21k. The supplier offers $14k on trade, and a reseller suggests it might fetch $17k privately after a few weeks. The owner can’t wait weeks, so they take the trade, cover the $7k shortfall from a small unsecured facility, and finance the new $85k printer under a fresh chattel mortgage. Bank statements show strong recent takings, and the new client’s signed agreement goes in with the application.
The shop now has one modern printer, one asset contract and a separate small facility it expects to clear within the year. The printing business finance page covers other ways print shops fund growth.
Ready for the bigger machine? Find out what’s possible
Upgrading mid-term is a good problem to have: the business has outgrown its gear. The trick is making sure the old contract doesn’t slow the new one down.
Our enquiry takes about 60 seconds, and there’s no credit check when you first enquire. We don’t send your details to a pile of lenders, so you won’t be chased by a crowd of strangers. A real person looks at what you owe, what the old asset is worth and what you want to buy, then calls you to talk through the options. Please answer the form accurately, payout figure included if you have it, so we can match the right option first time.
Frequently asked questions
Can I trade in equipment that still has finance on it?
Yes, if your business owns it, for example under a chattel mortgage. The dealer or buyer pays your lender the payout figure from the trade-in value, and any surplus reduces what you need for the new asset. If the trade-in is worth less than the payout, you have to cover the difference.
Can negative equity be rolled into new equipment finance?
Some lenders will consider adding a shortfall from the old asset to the new contract, but it means borrowing more than the new asset is worth. Expect closer scrutiny, a shorter term or a request for a deposit or extra security. Many businesses find it cleaner to clear the shortfall separately.
Can I upgrade a leased machine part-way through the lease?
Sometimes. Some leases, particularly for technology and vehicles, include an upgrade or early-exit option. Others require you to pay out the remaining commitment. The contract decides, so check it before you agree to anything with a supplier.
Will a lender approve new equipment finance while the old one is still running?
It can, if the business can comfortably carry both repayments. Lenders look at bank statements, the purpose of the upgrade and whether the new asset will lift revenue. A signed contract or purchase orders that need the bigger machine help your case.
Does a trade-in reduce the cost of the new asset for the instant asset write-off?
No. The ATO says the cost is measured using the purchase price before any trade-in credit. That matters when you're testing a purchase against the $20,000 threshold. Your accountant can confirm how it applies to your purchase.