Chattel Mortgage

Find out more about tax effective and structured chattel mortgage options for your vehicle and equipment.

Last updated on April 21st, 2022 at 05:16 pm by Thomas Perrotta

Flexible chattel mortgage to suite your needs

Compare chattel mortgages with Savvy

When you’re looking to buy a vehicle or equipment for your business, a chattel mortgage is one of the best options you can look to. With customisable loan terms and repayment options, low rates and fees and multiple tax benefits, chattel mortgages are one of the most popular commercial finance products for sole traders, partnerships and companies, large or small.

Savvy is one of the best places to find and compare the top chattel mortgage offers on the market right now. With over 25 diverse lenders on our panel situated across the country, we give you more options to choose from and help you through the process from start to finish. Everything begins with a simple quick quote and we’ll move your application along from there.

The features and benefits of chattel mortgages

Competitive rates from 2.99% p.a. (3.36% p.a. comparison)

With commercial finance interest amongst the lowest in the market, you can lock in an affordable rate from the outset to help you save across the loan.

Access 100% financing

You’ll be able to borrow up to the full purchase price of your vehicle or equipment, sidestepping the need for an upfront deposit, and can also include on-road costs in your loan.

Repay over one to seven years

As a borrower, you’ll have the flexibility to have your loan repaid in full over as little as 12 months or space out your repayments as long as five to seven years.

Enjoy tax benefits

You can claim the GST on your business purchase, as well as the interest on your payments and depreciation of your asset, on tax as business expenses.

Own your vehicle or equipment from the start

Because you’re the owner of your asset from the outset, you have more of a say in how it’s operated and modified to fit your needs (which isn’t the case for car leases).

Flexible residual values

Also unlike car leases, residual payments are optional and can be shaped to suit your personal requirements, rather than having mandatory minimums set by the ATO.

Early repayment options available

We’re partnered with lenders who can enable you to repay your loan in full prior to its scheduled end date without incurring any fees for doing so.

Choose your repayment cycle

On top of your customisable loan term, you can select whether to make your repayments on a monthly, fortnightly or weekly basis to fit around your income.

Why trust Savvy with your chattel mortgage?

Chattel mortgages explained further

What is a chattel mortgage and how do they work?

If you’re a business owner or part of one looking for car finance, it’s quite likely you’ve come across a financial product called a chattel mortgage. A chattel mortgage is a loan product built specifically for commercial car purchases – cars used for business 50% of the time or more.

The explainer: Chattel mortgage

In the broadest sense, a chattel mortgage is a business car loan comprised of two parts. The chattel, and the mortgage. The chattel is your car – the asset the loan is financing. The mortgage is the loan itself – what you have to pay back. When you purchase a vehicle, the vehicle is effectively yours or your company’s property. What a financier does is place a mortgage on the vehicle, making the vehicle a security against the loan. This gives the financier or lender peace of mind that you’ll pay the loan back. The upside to this is that you will pay less in interest, as security-backed loans generally have lower interest rates. Read more about chattel mortgage features and benefits.

The nitty-gritty

“Mortgages” are officially known as an ASIC-registered “fixed and floating charge.” This grants the lender (chargor) the right to gain control (possession) of the chattel in the event a client defaults (the chargee.) There’s an even more technical explanation, but that’s best left for the lawyers to pore over!

Please note that registration with ASIC does not mean chattel mortgages are subject to the same conditions as the National Consumer Credit Protection Act.

How a chattel mortgage works in practice

chattel mortgage works much in the same way a commercial loan does – you pay back the loan in instalments on a monthly, fortnightly, weekly or otherwise arranged basis. You can choose to offset your regular repayments with a residual value or “balloon” payment. This is a lump sum set aside at the end of the loan, giving you the option to:

  • Trade in your car and start a new loan using the trade-in proceeds to settle your account;
  • Pay out the residual and take charge of the car free and clear, or;
  • Refinance the residual value.

Why chattel mortgages are better for business

Chattel mortgages differ from consumer car loans because businesses can claim tax benefits – both up front and throughout the life of the loan. Firstly, as the purchase is a cash sale, you can claim the GST on the purchase price. You can also claim the full input tax credit. Over the life of the loan, you can claim the interest paid on your repayments. (Sometimes your lender claims this and passes on the savings to you.) You can also claim the tax breaks on depreciation up to the depreciation limit.

What’s more is lenders may be prepared to finance 100% of the vehicle’s value so you don’t have to spend your own capital or tie up cash flow. You may even be able to finance more than the car’s value to amortise insurance and other extras.

What are the pros and cons of chattel mortgages?

PROS

Own your asset

Operate your vehicle or equipment how you like with (almost) no restrictions on how you can use or modify it over time.

GST is claimable on your purchase

Having GST as a claimable business expense cuts a massive 10% off the purchase price of your asset, likely saving you thousands.

Customisable to your needs

The amount is malleable to fit the cost of your purchase, with terms, fees, repayment frequency and residuals all able to be negotiated in some way.

CONS

Must be used for business purposes

Part of the deal when it comes to a chattel mortgage is guaranteeing that your asset is used at least 50% of the time for business purposes.

All running costs are yours

Any costs relating to the running and maintenance of your vehicle or equipment is yours to arrange and cover; your financier doesn’t organise it for you.

Updating assets is more difficult

If you’re looking to stick with the latest model of car or make of machinery, a chattel mortgage is more difficult and time-consuming to switch out than a lease.

Your chattel mortgage questions answered

What do “chattel” and “mortgage” mean?

In a chattel mortgage, the “chattel” is the asset that you’ve purchased under finance and the “mortgage” is the loan itself, representing the interest your lender holds in the asset until you’ve paid it in full. Once you’ve done this, the mortgage is removed, and the vehicle or equipment is yours untethered from any other party.

How much will my chattel mortgage cost?

On top of the interest you’ll be required to pay, your fees can cost as much as:

  • Ongoing fees: $20
  • Establishment fee: $600
  • Early repayment fee: $900

However, these are only the maximum value and can all potentially cost as little as nothing at all. The length of your loan term will also impact how much your loan costs, as the longer your loan, the longer the time spent paying interest and fees. 

What happens at the end of a chattel mortgage?

When your chattel mortgage ends, you can pay off your residual in one of three ways:

  1. Trade the vehicle or asset in, or sell it, to pay off the residual and take out another chattel mortgage. 
  2. Refinance the residual and extend your current loan term
  3. Simply pay out the residual with cash and take full ownership.
Can I use my existing vehicle as a trade-in?

Yes – you can borrow 100% of the value of a vehicle or equipment with a chattel mortgage or choose to use a deposit. This deposit can take the form of cash or a trade-in. Chattel mortgages are designed for business users and give you the freedom to borrow what you need and apply your way.

What is an instant asset write-off?

Instant asset write-off is a tax break available to eligible businesses which allows them to claim an immediate tax deduction for an asset in the year it’s first used or installed. This specifically applies to the business portion of the asset’s usage. Eligibility for this deduction relies on when you purchased and first used it, its cost and your business’ aggregated turnover.

Do I need to factor in business usage when calculating tax deductions?

Yes – you can only claim on the business portion of your asset, not 100% if you’re also using it privately. If you use a car for your business activities only 75% of the time, for instance, you’ll need to account for that accordingly. When it comes to claiming for both the interest portion of repayments and any depreciation during your agreement, be careful to only include any usage the ATO allows.

What is a low doc chattel mortgage?

A low doc chattel mortgage is one low doc commercial finance option available to businesses and sole traders who can’t supply the required previous two months’ worth of tax returns. These loans come with greater restrictions surrounding borrowing and are charged at higher rates but are still an option for businesses who wouldn’t otherwise qualify for financing.

Should I choose a hire purchase instead?

A hire purchase agreement is essentially the same as a car lease, except it’s designed for businesses whose accounting is conducted on an accrual basis, rather than a cash basis. This finance product is the only way for these companies to claim for GST on their purchases.

I run a seasonal business, can I apply for a chattel mortgage?

Yes, we can arrange seasonal repayment plans according to your busy periods.