Chattel Mortgage

Chattel is the equipment, especially the vehicles, needed to run a business. Every business has need of equipment, and when it comes to purchasing business vehicles it can become very costly. You may think about leasing the needed vehicles, but what if you want to own them instead. Of the many business financing options out there, a chattel mortgage is specifically for purchasing this needed equipment.

If you want to own the vehicle or other equipment outright, and want to have flexible options in repayments, you might want to check out at chattel mortgage. With a chattel mortgage, there are different ways you can set up repayments to fit your cashflow needs.

What is a Chattel Mortgage?

A chattel mortgage is just what it sounds like, a mortgage placed on your chattel, or equipment. To spell it out more fully, this is commercial financing, most often used to purchase vehicles that will primarily be used for business. Unlike leasing, where you make payments to borrow the vehicle for a certain period, with a chattel mortgage you are paying for the vehicle outright.

The financier you choose to work with loans the money for the purchase of the vehicle. Once the vehicle is purchased, the financier takes a mortgage out on the vehicle, securing the vehicle as collateral against the loan. This mortgage is removed once the loan has been paid back. The vehicle is the property of the company at the time of the purchase and acts as collateral for the loan. This type of loan can be useful to any individual or organization that will be using the vehicle(s) for work at least 50% of the time.

How does a Chattel Mortgage Work?

There is some flexibility with a chattel mortgage. You determine how much or how little deposit will be paid down for the vehicle, based on your cashflow or tax needs, and then work with the financier to determine a repayment schedule based on the remaining balance. The steps to a chattel mortgage are simple.

First the individual or organization determines the vehicle needs for their business, picking out the vehicle(s) that will be purchased. Once this is determined, they will contact their financier to set up the loan, determining how much will be paid down as the deposit and setting up terms.

Once the funds are secured, the vehicle is purchased, and becomes the property of the business owner immediately at the purchase time. They will be making repayments towards the loan, but the vehicle is owned by the purchaser at that time of sale.

While the vehicle is the property of the purchaser, it also acts as collateral towards the loan. The financier will take a mortgage out on the vehicle, registering their security interest in the title with the PPSR, the registry board which keeps record of these interests held in personal property.

This mortgage will be held on the vehicle until all repayments are completed. Once the repayment schedule has been honoured, the financier removes the security interest from the PPSR, and the title is clear for the purchaser.

Chattel Mortgage Options

The flexibility of a chattel mortgage leaves the borrower with many options for setting up repayment schedules. As this type of loan is not as regulated as other car loans, the repayment options can be tailored to fit the needs of the purchaser.

The purchaser can make a deposit, lowering the amount borrowed and allowing for extra tax benefits in the purchase of the vehicle, or they can finance up to 100% of the purchase through the chattel mortgage. Larger payments can also be made throughout the repayment period. A final balance payment can also be set to reduce monthly payments. This can be set up to 60% of the loan amount.

If the individual or organization is registered for GST on a cash accounting basis, there are options to claim Input Tax Credits. GST will not be paid on any monthly repayments or on a final payment but would be paid on a deposit. There is also the possibility of tax deductions on interest rates and depreciation value.

Keep in mind that as chattel mortgages are less regulated than other car loans, you need to make yourself aware of all the terms and conditions involved before signing up. While this flexible regulation is useful to you as the borrower, it also requires you to be more aware of the terms involved and make sure you deal with a trusted financier.

Chattel Mortgage Interest Rates and Fees

Generally, interest rates for car and equipment loans will begin around 4%, but this will vary depending on the terms of a chattel mortgage. Variables that will affect the associated fees include the amount of the loan, the repayment schedule, the amount of the deposit, and the amount of monthly payments.

With a chattel mortgage, you will have a fixed repayment schedule for the life of the loan, though you can make balloon payments to lower these. As the loan is secured, the interest rates will decrease. For more in depth information about interest rates and fees you will need to contact your financier.

Qualifying Criteria

Chattel mortgages are easily utilised by any business that is purchasing vehicles or equipment. This includes sole proprietors, trusts, partnerships, companies, or anyone holding an ABN. As a chattel mortgage is less regulated, and the vehicle is the collateral, this is also a good option for someone with poor credit. To qualify you will need to have an ABN and driver’s license. For further qualifying information, contact your financier.

How to apply for a Chattel Mortgage

The application can be completed in person or online. To avoid delays in your application processing, make sure you have all the necessary documentation on hand. This includes:

  • ABN
  • Driver’s License number
  • Account number and BSB of the main business account
  • Details of the desired equipment to purchase

For larger purchases, Profit and Loss or other banking statements may be required to determine repayment abilities. Make sure you understand your deposit requirements to better assess the repayment schedules.

Benefits of a Chattel Mortgage

With any type of loan, there are benefits and drawbacks. To determine if a chattel mortgage is right for you, make sure you understand the benefits and how they may fit in with your business needs. Benefits of a chattel mortgage include:

  • Less regulation allowing for flexibility to fit your financial needs as well as flexibility in repayment schedules
  • Repayments are structured to fit your cashflow needs
  • Ability to finance up to 100% of the purchase
  • Interest rates are lowered as the loan becomes secured
  • The loan is secured against the vehicle purchase
  • Tax benefits, including the ability to claim Input Tax Credits if you are registered for GST
  • Deposit options to reduce the borrowed amount
  • Ability to reduce monthly repayments by setting up a final balance payment up to 60% of the loan amount
  • Available to anyone with an ABN using the vehicle or equipment primarily for work
  • Open to people with low or poor credit

Frequently asked questions

Who can qualify for a chattel mortgage?

Anyone holding an ABN who will be using the vehicle or equipment for business at least 50% of the time can qualify. This includes partnerships, sole proprietors, companies and trusts.

What can I finance with a chattel mortgage?

Any equipment, including vehicles that will be used primarily for business qualify for the chattel mortgage. As long as you can show the vehicle or equipment will be used for business at least 50% of the time, it qualifies for a chattel mortgage.

How much can I borrow against my purchase price?

This will vary depending on your cashflow needs. Chattel mortgages can be used to finance any amount of the purchase price, up to 100%. This will be up to you based on your financial abilities. You decide how much you pay for a deposit, you decide how to set up the final payment. All these decisions help determine what your repayment plan will be.

Can I claim the purchase on my taxes?

There is potential to claim deductions for interest rates and depreciation. Also, those registered for GST may be able to claim Input Tax Credits. You would need to speak with an accountant to determine the possibilities for your business.

I have poor credit; can I still qualify?

Yes. The vehicle purchase acts as the collateral for the loan. This makes the chattel mortgage user friendly for people with poor credit. This loan also offers flexible repayment options making it easy to fit around your financial needs.

Professionals Ready to Help You Equip Your Business

Are you in need of new equipment to help your business meet its growth needs? The professionals at Mortgage World Australia would like to help you make this a reality. With over 17 years of experience, helping businesses across Australia, the financial experts at Mortgage World Australia are available to advise you on your loan needs.

Mortgage World Australia is dedicated to providing helpful customer service, expert knowledge and advise to get your business the best loan for your financial needs. Contact Mortgage World Australia today and set up your consultation to help move your business forward.