When it comes to sourcing finance, motorists have a variety of avenues to seek credit. One of the less common formats is a chattel mortgage. Although it may sound like something to do with your home, it’s not the case at all.
So what is a chattel mortgage? First things first, let’s clarify that chattel mortgages are for business use only. While one might assume this means just companies or businesses, it also extends to partnerships and sole traders. Nevertheless, a vehicle which is the subject of a chattel mortgage must be predominantly used for work purposes.
What is a Chattel Mortgage?
Chattel mortgages are defined as “a mortgage on a moveable item of property”. In this context, property is defined as a possession rather than the housing assets we’ve become obsessed with in recent years!
The mechanics of a chattel mortgage include an application for the loan, which once approved sees the lender purchase the vehicle on behalf of the applicant. The applicant will be listed as the owner of the car and will be required to make ongoing payments.
Once an applicant has paid off the debt in full, only then do they attain complete ownership of the asset. Financiers seek to protect themselves by placing the vehicle as security against the loan.
Business owners also have other options available to them as they approach the end of their financing obligations. For starters, they may choose to refinance the vehicle based on its residual value. Alternatively, some lenders may facilitate a vehicle trade-in, which could help you switch to a newer car.
What are the Benefits of a Chattel Mortgage?
While the underlying prerequisite for a chattel mortgage is the majority portion of the vehicle’s use being for business purposes, business owners also need to assess their operating circumstances.
Chattel mortgages often favour businesses which follow cash accounting principles and account for GST on a cash basis. They can make an immediate claim for the GST component of the vehicle’s retail price as an Input Tax Credit.
Interest rates are typically less than those of other financing methods. This is because the car is secured against the loan. What’s more, an initial deposit against the vehicle can reduce liabilities associated with the loan.
The structure of a chattel mortgage also varies from one lender to the next. But with this variability comes the opportunity to attain payment terms and a loan duration that could be more favourable to a business than other loans.
Last but not least, one of the most beneficial aspects of a chattel mortgage is that payments can be deducted during tax time. Again, you’ll be expected to prove the vehicle has been used for work purposes more than half of the time.
The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.