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Chattel Mortgage


Chattel Mortgage

One of the best ways you can get a vehicle for your business is through a chattel mortgage. This is a form of car finance that is strictly for businesses in need of vehicles. What makes it better than other types of business vehicle finance is that it is a secured car loan that doesn’t require you to own a property.

A chattel mortgage is reserved for business cars, and you are probably wondering which kinds of cars qualify as business vehicles. When getting car finance, a business vehicle is one that is used 51% of the time for business purposes. As long as you can prove that is what you need a chattel mortgage for, you are good to go and will end up with secured car finance.

Generally, a secured car loan will require that you should include a property of proportionate or equal value to the loan as collateral. This means that with that property in place, the lender does not have to worry about your ability to repay the loan. In a case where you are unable to repay, i.e. where you default on the payments, the lender can choose to sell the property and use it to cover the rest of the debt. This is why the lender can comfortably give you the low-interest loans as they are not taking on as big a risk as they would be doing if it was with an unsecured loan.

Under a chattel mortgage agreement, the lender will give you a regular car loan to get the business vehicle that you want and then take out a mortgage on the car, which will end when you are done repaying the loan. With this, you can easily get the car you want without having any property or having to pay more in terms of the interest rate. Thus, what you end up with is a cheap loan even when you don’t own a property. The only risk is the same risk you face when you get a regular secured loan, you could lose the security if you default, and the security, in this case, is the car. The finance company has complete peace of mind when issuing a chattel mortgage because they know that they can repossess the car and sell it off to cover the loan’s remaining cost if you don’t repay.

When seeking a chattel mortgage, you must consider all the factors you will naturally consider if you are getting any other car loan. While it may be cheaper than an unsecured car loan, it is still a debt that needs to be paid off, and no debts should be incurred unless it is necessary. Since it is a business vehicle finance, it is essential that you should consider your business cash flow expectations as this will help you agree to a repayment plan or structure that you can comfortably pay off; you should also consider whether you really need to get that car for your business or you should go for a lease. If you eventually get the deal, you must make sure you fully understand the value of the deal you are getting.

Your business stands to gain a lot from chattel finance. If you are considering getting a business vehicle finance, a chattel mortgage should be one of the first options you should consider. The fact that it has low interest alone is enough reason to make it a top option because that will reflect in how much you eventually pay. However, low interest is just one of the many benefits you will get on a chattel mortgage. You will also be getting tax benefits through the life of the loan from the moment you are paying for the car with the loan to when you pay your last repayment. There is GST on the purchase price when you are buying the car, and you can also get the full input tax credit.

Beyond the tax benefits, you will enjoy a positive cash flow as you will not be putting a huge amount directly into a car purchase. Instead, you will be paying low amounts of money as repayments every month. Therefore, you can use the money you would have otherwise spent on car purchase for a more meaningful purpose that will be directly beneficial to your business. Another tax break that will be available is on depreciation.

When getting any kind of car finance, you must check the repayment structure in place to see if it works for you. Most lenders are flexible with repayments, and you just have to find a comfortable deal for you. Repayment flexibility usually comes in various forms, but two forms are generally more dominant. The flexibility in terms of the loan duration enables you to lower how much you will pay at each repayment. The other option is flexible repayments in terms of how much you will pay for each repayment. This can work where your business is one with a seasonal cash flow such that you will pay less during the off-season when you make less and more during the booming periods when you make more. For example, if you are running a transport service in a tourist area, you may pay more during the holidays when more people are in town than in other periods. The lender should always be a flexible one when you are seeking car finance; only this way can you get a favourable deal.

Disclaimer: This information is only available as a general guide on the government policies. It is derived from the official Australian government sources. We do not bear any responsibility for the commentary and analysis of this public domain information nor any liability for how the facts are interpreted. It is recommended that you speak with an accountant or financial advisor to get precise information and advice on your situation.