Benefits of taking out a chattel mortgage over a consumer car loan

Chattel mortgage can give you significant financial advantages over taking out a consumer car loan

Benefits of taking out a chattel mortgage over a consumer car loan

Chattel mortgage can give you significant financial advantages over taking out a consumer car loan

Are you a business owner?

A chattel mortgage may give you significant financial advantages over taking out a consumer car loan. If you are looking to buy a vehicle used primarily for business (50% or more) a chattel mortgage may be your best option. In most cases a consumer loan must be taken out by an individual, not a company.

The main reason why chattel mortgages differ from consumer car loans is that your financier will secure the loan using the “chattel,” or vehicle you intend to purchase. The buyer takes ownership of the car upon purchase and once you pay the loan off, the mortgage is removed – much like a “traditional” mortgage.

Since a chattel mortgage is a business transaction, you can claim depreciation and other benefits reserved for business customers.

Lower interest rates compared to consumer loans

Since consumer loan products include account keeping fees and other charges, a chattel mortgage is largely free of these costs. As the loan is secured to a vehicle, this gives the business owner an overall lower interest rate than unsecured car loans.

GST, depreciation and interest can be claimed back

One of the greatest benefits to owning your next business car with a chattel mortgage is the ability to instantly claim the GST paid on your car through your next Business Activity Statement (BAS.) You can also claim depreciation and interest with certain types of chattel mortgages. You may be eligible to claim back the full input tax credit.

Flexible terms, residuals and options to include extras

Chattel mortgages can be structured like consumer loans where you pay them off regularly until the loan is paid off. You may also opt for a residual value payment, also referred to as a balloon payment, at a nominated time. Terms can range from 12 to 60 months. In some cases, terms can be extended longer than 60 months. You may also add extras such as insurance to the mortgage. 

Doesn’t jam your cash flow

If you have a trade-in or wish to pay a deposit against the car, the choice is also yours. In many cases, you or your company is not under any obligation to fund the car at any stage. This means you can better structure your cash flow and account for future repayments.

Caveat emptor: Chattel mortgages are not regulated

Though there are many benefits to chattel mortgages, a chattel mortgage is not regulated by the National Consumer Credit Protection Act (NCCP Act.) This removes some of the credit checks which licenced credit providers are required to undertake by law. The NCCP Act prohibits predatory lending, such as approving loan products to people who have no chance of paying a loan back. Likewise, the borrower is vulnerable to a lack of consumer protections such as a clear and concise understanding of the loan terms, fees or charges like consumer loans. 

Savvy can help you with chattel mortgages

Savvy Finance + Insurance are a team of financial professionals that can help you and your business through the ins and outs of chattel mortgages. We offer a no-obligation consultation over the phone, answering all your questions. If your business needs a hassle-free chattel mortgage with some of Australia’s most competitive interest rates, contact Savvy today.

Get answers to your chattel mortgage questions

Read through our knowledge base to find answers to all your common car loan questions

How does a chattel mortgage help my business?

When taking out a chattel mortgage, businesses can claim the GST back on purchase price, and deduct depreciation and interest payments.

What is the difference between a hire purchase and a chattel mortgage?

Very little in practical terms. Both are types of secured business loans. However, in hire purchase situations, your business does not take ownership of the asset until the loan is paid off. This may better suit your accounting methods.

Can I apply for a balloon payment?

Yes. These are also known as residual value payments. Be careful: you will need to pay a lump sum at the end of the loan, in return for lower monthly repayments.

Can I borrow 100% of the asset’s value?

Yes – chattel mortgages offer the flexibility of borrowing more than 100% of the asset’s value to help smooth out payments for insurance, training, or installation.

I am a sole trader, can I apply?

Yes – You will need to provide proof of your ABN or ACN and that the asset is for 50% or more business use. Individuals will need to apply for a personal loan instead.

I run a seasonal business. Can I apply?

Yes – we can broker chattel mortgages for seasonal businesses and can package repayments according to your business needs.

Can I finance used equipment?

Yes – we can help find chattel mortgages for used equipment. However, used equipment means taking on higher risk, and in some cases mean higher than usual interest rates.

Is an unsecured business loan the same as a chattel mortgage?

No – a chattel mortgage requires you to put up your purchased asset as a security.

My business had a bad credit in the past. Can I apply?

Yes – your consultants work to find a chattel mortgage solution that suits your circumstances.

Your helpful guides to chattel mortgages

Find out more about chattel mortgages and how they can help your business

How a chattel mortgage can improve cash flow

Unlike consumer loans, purchasing assets such as cars or machinery with a chattel mortgage can be cash flow neutral. That means, you won’t have to come up with a deposit for your asset, nor will you have to pay for after-sales extras such as registration or insurance, if you so choose. A business can borrow more than the entire value of their asset, to spread these costs out over the term of the loan. By gaining a performing asset that doesn’t have any large upfront costs, you can start doing business without worrying about being behind and playing catch-up.

Balloon Payment

A balloon payment, or residual value payment, is a lump sum set aside for the end of the loan. In return, your business pays a lower monthly repayment compared to not having a balloon payment. However, this can be used to your advantage. If your business buys equipment that needs updating every so often, you may have the option to trade your equipment in and start a new loan with new equipment. This is much like a lease, except you own the equipment to begin with. You can also pay out the residual and keep the equipment, or refinance the residual value payment. All three options can suit your business, depending on your goals.

Chattel mortgage and interest rates

A chattel mortgage usually comes with lower interest rates than comparable consumer loan products. Why is that? The word “chattel” gives it away – “chattel” is an old-fashioned word for “security”, a mix between capital and cattle (which were seen as the same thing in agricultural societies.) By using your asset as “chattel”, the mortgage or loan is tied to the asset under finance. This can mean rewards for you in terms of lower interest rates and savings by claiming depreciation, GST, and interest, but it does pass risk on to you. If you default on the loan, your lender has the right to repossess it.

Buying new vs used

When it comes to buying for business, financing new cars or equipment makes the most sense, especially when financing it with a chattel mortgage. Buying new means lower possibility of the financier losing money on the deal – which they avoid as much as possible. Since you may finance 100% or more of the asset’s value, buying new has the same impact on your cash flow as buying used. Since depreciation will hit instantly, you can also claim this back, as well as GST paid, and on interest payments. Buying new may look like a large up-front cost, but when it comes to business transactions, buying new is usually the best way to go.

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