What is a Chattel Mortgage and How Do You Apply For One?
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What is a Chattel Mortgage and How Do You Apply For One?

Nora Ackermann

Nora Ackermann

19/10/2020 • 6 minute read

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Your business needs a vehicle, so naturally, the first question is how to pay for it? You have different options for financing a car (or any other vehicle) and a chattel mortgage is the most popular one. Depending on your provider, it may be called a car loan or equipment loan. However, it works similarly to a mortgage or a fixed-rate home loan. 

Your lender provides funds to purchase a vehicle for business purposes. You take legal ownership of your asset while it is used as security against your loan, a common option to achieve better interest rates and higher loan amounts. Let’s take a closer look at who can benefit from chattel mortgages and what your business should consider before getting one. 

Chattel Mortgage – What is it?

A chattel mortgage is one of the most common loan options if you need finance for a business car. It gives you immediate ownership of the car that you are financing, which can come with major benefits such as tax offsets. 

It works similar to a normal mortgage. A lender provides funds to purchase your asset (in this case called a chattel). Once the purchase is done, you take ownership of the vehicle straight away while it remains as security for your loan until you finish your repayments. If you are curious what your chattel mortgage rates would be, you can use a chattel mortgage calculator to work out your repayments. 

Who can take out a chattel mortgage?

In general, a chattel mortgage can be used to purchase any movable equipment that will mostly or fully be used for business purposes.  You can determine whether your vehicle is mostly for business purposes by estimating if it will be used for your business more than 50% of the time. While you can use a chattel mortgage to purchase any movable business equipment, it is most commonly used to purchase vehicles such as cars. 

What can a chattel mortgage be used for?

Most commonly, chattel mortgages are used by businesses to either purchase a car or other vehicles and machinery that is needed for their operations. They are long term mortgages and, therefore, can be used for mid- to high-value purchases. However, it depends on your business and your financial situation if a chattel mortgage is best for your individual circumstances.  Either way, you should speak to a financial advisor before signing off on a big financial commitment. 

What are the benefits of a Chattel Mortgage?

Taking out a chattel mortgage comes with some major benefits especially for small business owners. 

  • First of all, you may be able to save some money in interest. Your lender may be able to offer you a lower interest rate as chattel mortgages are secured loans. Your vehicle acts as security against your loan. If you are unable to repay your loan, your lender may be able to resell your asset in order to make up for their loss. Therefore, they won’t risk losing your money and are more likely to offer you a lower rate than a regular loan would. 
  • Additionally, you own the vehicle straight away which can be a plus when doing your business tax return. Your business can claim the initial GST amount of the asset’s purchase price with a chattel mortgage. 
  • In some cases, no upfront deposit is required which makes it a good option if you need to purchase a work vehicle but don’t have the necessary cash flow otherwise. 
  • You are more flexible with repayments. Some lenders allow you to make lump sum repayments at the end of a term to lower your monthly payments. However, check the small print of your contract first as big balloon payments may increase your overall interest rate. 

Something to consider: Before making any financial decisions, it may be wise to speak with a financial advisor. Depending on your business size and structure, chattel mortgages can come with tax benefits that you should know about upfront. 

Businesses that are registered for GST and operate on a cash basis (as you earn it) can claim the GST benefits when taking out a chattel mortgage. This allows you to claim back the initial purchase-price GST on your next business activity statement (BAS).

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Additionally, a chattel mortgage is not regulated under the National Consumer Credit Protection Act (NCCP Act) and therefore, you should seek legal advice before signing the contract to ensure that it is the best option for your business.

What to think about when taking out a chattel mortgage

You should always compare lenders to figure out where you can get the best deal with the best terms for your business needs. What’s best for you highly depends on what type of asset you want to purchase and what business you are operating. Ask yourself a few questions to determine whether or not a chattel mortgage may be the best loan option for your business.

  • Will you receive chattel mortgage GST benefits?
  • How much interest will you pay and would another option be cheaper for you?
  • Do you need immediate ownership of the asset?

Other types of equipment finance

If you are unsure if a chattel mortgage is the best option for your personal business, there are other options available to you. 

Finance Lease 

If officially owning your vehicle straight away is not a priority, a finance lease is another option. Your lender will remain the official owner of your vehicle until all payments have been made. However, you will immediately be able to use it and there is a chance that your finance lease repayments are at least tax-deductible. 

Depending on your business model, it could also be a plus that the asset won’t be on your books until it is fully paid off. However, while you don’t yet own the asset, you will still have to pay for maintenance and any repair costs that come along your way. 

Commercial Hire Purchase (CHP)

Commercial hire purchase allows you to own the asset at the end of your payment terms. The main benefit is that you won’t need to make a big purchase all at once and you can free up additional cash flow for your business while using the asset already. However, you will end up paying interest on your item and therefore add additional costs to the purchase. 

Still not sure about the best option for you? Read more on business loans here. Need more info on car loans, click through here

Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.


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Nora Ackermann

Written by Nora Ackermann

Nora Ackerman is a contributing writer at Oiyo, specialising in personal credit. Nora originates from Germany and holds a Bachelor of Arts from Karlsruhe Institute of Technology and a Master of Arts from the Humboldt University of Berlin. She has extensive experience across the communications and journalism sectors, with her work being published in a number of German publications.

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