A chattel mortgage is a type of commercial vehicle finance. Under a chattel mortgage Australia, a lender loans money to a customer to purchase a vehicle. The customer then begins to make regular payments.
Ownership of the vehicle is taken by the customer at the time of purchase, but the lender takes out a mortgage over the vehicle as security for the loan. The lender registers a security interest on the Personal Property Securities Register (PPSR). The security interest means the secured party can take the personal property (known as the collateral) if the secured obligation is not met. (They can repo the car and sell it)
When the loan term is up, the vehicle’s 100% yours.
To qualify for a chattel mortgage
To qualify for a chattel mortgage, the vehicle must be used for a minimum of 51% business use. Businesses ranging from sole traders, partnerships and trusts to large corporations can use a chattel mortgage as a business car loan option. There are several business car loan options available to self-employed individuals, ABN holders and small business owners that negate the need for payslips. In some instances, no paperwork is required to secure a loan.
When Should I use a chattel mortgage?
If you own a business or are self-employed, a chattel mortgage may be preferable than an unsecured consumer loan because lenders frequently charge a lower interest rate on a chattel mortgage. In some circumstances, qualifying for a chattel mortgage is easier than qualifying for a consumer loan.
Another advantage of chattel mortgages is the repayment flexibility they provide. You can get a chattel mortgage with a fixed or variable interest rate for a period of 12 months to five or even seven years. You can pay off the loan in equal monthly instalments or make fewer monthly payments with a lump sum payment (known as a balloon payment) at the end of the loan term.
Can you claim GST on a chattel mortgage?
In most cases, you can claim the entire amount of GST paid on your vehicle’s purchase price (also known as an input tax credit) on your next Business Activity Statement (BAS) after the purchase. However, you should discuss this with your accountant to learn more about the tax advantages that a chattel mortgage may provide.
Can you refinance a chattel mortgage?
If you’ve had a chattel mortgage for more than a year, it might be worth shopping around for a better deal. At the end of the term, it’s possible to refinance the balloon payment at the end of the contract.
Benefit of a Chattel Mortgage
A benefit of a chattel mortgage Australia-wide is flexibility. You can choose to finance up to 100% of the purchase price. You can choose to have repayments structured to best fit your cash flow. You can choose to have a balloon payment made at the end of the loan term, reducing your monthly repayments, and freeing up your money for other purposes.
Access to possible tax benefits where the car is used to generate income. (Check with your accountant)
- Fixed interest rate
- Fixed repayments for the life of the loan
- You own the vehicle from the start of the agreement.
- Balloon payments on the business car loan are available.
- Possible to have a no deposit car loan and get 100% finance
- No GST is charged on the monthly chattel mortgage payment.
- Low establishment fees and monthly fees, no pay-out penalties
- GST registered customers can claim the GST included in the vehicle purchase price.
The bottom line
A chattel mortgage can be utilised to fund a vehicle that is mostly used for business. It can provide several advantages over a consumer car loan, such as larger borrowing, flexible repayments, and a potentially lower interest rate. Chattel mortgages, on the other hand, do not have the same legal and consumer protections as a traditional car loan. While this may make it easier to apply for a loan without having to prove your income, you run the risk of over-borrowing, which could put you in financial problems.
When determining how to finance your business vehicles or equipment, it’s crucial to consider more than just the interest rate and consider the costs and additional benefits (or drawbacks) of each choice. For example, if you just need a vehicle for a few years, leasing rather than buying may be a better option.
Alternatively, if you are unsure about the vehicle’s long-term utility, you could explore a hire purchase deal with the option to buy at the conclusion of the term.
Overall, before signing up for any credit product, you should do your homework and get independent financial and legal counsel.
Disclaimer: Nothing in this article should be assumed as personal advice. You should consider whether the information is appropriate to your needs, and where appropriate, seek advice from a professional financial adviser.