Chattel Mortgage: What It Is, How It Works & Why Use It Today

Today, a car is an absolute necessity for businesses. 

Company cars provide lots of benefits:

• First, a car that is bought specifically to support your business will bring the most benefits. Whether you’re a tradie or a courier, it can be used to help you do the job you need to do. 

• Second, a company car can become your rolling billboards if you place your logo and other company information and imagery across them. These help promote your brand and boost visibility even when the cars are parked. 

• Finally, a company car will improve the professional image of an employee, especially when meeting with potential clients. 

If you are considering purchasing a car primarily for business purposes, you do have a lot of financing options nowadays. One great option is a chattel mortgage.

A chattel mortgage is a type of car finance that allows you to get vehicles or other movable equipment for commercial purposes. It is designed for partnerships, sole traders, and companies using the cash method of accounting.

How It Works

Under the chattel mortgage terms, you will gain ownership of the car from the time you made the purchase. The lender, on the other hand, will have security over the vehicle through the mortgage, which you must pay over a period of 12-60 months. The lender will then register the loan with the Australian Securities and Investment Commission as a Fixed and Floating Charge.

Once the contract has been completed and you have paid the total loan amount, the lender will remove the charge and you will have a clear title to the vehicle.

4 Reasons to Use Chattel Mortgage:

1. Potential tax benefits:

If you finance your car with a chattel mortgage, you can enjoy potential tax deductions.

• First, you can claim the Goods and Services Tax or GST you have paid on the initial purchase as an Input Tax Credit. By using a chattel mortgage to get the car you need, the GST will be charged only on the purchase price and not on the regular repayments. This is actually what makes this car financing option popular with business owners.

• Second, you might be able to claim tax deductions for interest payments on your chattel mortgage. Once determined that you are eligible, you can make a claim on your next annual tax return.

• Lastly, you may also claim tax deductions for the depreciation of the car value. A reputable tax professional can help you with this because they are well-versed in the list of requirements of the Australian Tax Office, along with today’s depreciation limit.

2. Lower interest rates:

A chattel mortgage can be free of account keeping fees and other charges that are usually included in consumer loan products, however be aware that some lenders do charge a monthly account keeping fee. Due to the fact that the loan is secured to the car, this may give you an overall lower interest rate.

In addition, a chattel mortgage offers fixed interest rates. This means that all costs are known ahead of time, which allows for stress-free budgeting.

3. Flexible terms and repayments:

A chattel mortgage can be easily be structured like a consumer loan where you can pay it off on a regular basis until the total loan amount is paid off. Also, you can opt for a balloon payment or a residual value payment at a specified time. 

Though the terms can range from 1-5 years, there are instances wherein this can be extended. Moreover, you can conveniently add extras, including insurance, to the mortgage.

4. No deposit

Under a chattel mortgage, the vehicle can be 100% financed – you don’t have to pay a deposit. In fact, you are not obliged to fund the car at any stage, which further means that you can better manage your business cash flow for future repayments.

Despite these many benefits, you should also know that a chattel mortgage does not fall under the framework of the NCCPA or the National Consumer Credit Protection Act, which obliges licensed credit providers to perform strict credit checks as well as attend to consumer safeguards when approving loans. Moreover, they should provide charge, fee, and other crucial loan information upfront. Withholding these pieces of information from customers is indeed a bad business practice. However, take note that a chattel mortgage is exempted from this regulation.

Now that you are aware of how chattel mortgage works, along with its benefits and limitation, you can decide if this car financing option is best for your business. Make the call only after you have analyzed everything. 

If you don’t understand even a single term, it is highly recommended that you consult a finance expert. A reputable car finance broker or a tax advisor will fully enlighten you on how a chattel mortgage can greatly benefit your business. After all, they have the right knowledge, skill and decades of experience in the field.  

Author bio: Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he's working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.