Before signing up for any form of financing, it’s important that you do your due diligence. It doesn’t matter if you are borrowing as an individual or as a business, nor the type of loan, or the financier from which you are sourcing the funds – always prepare a list of considerations that will help you understand your financial circumstances.
We’ve previously discussed the perks that come with obtaining a chattel mortgage, but what should you consider beforehand? We know that this product has particular appeal to small and medium business owners who want to manage their cash and tax affairs, but what else is at play? These are the key questions you should ponder.
When do I Take Possession of the Vehicle?
A chattel mortgage allows you to gain immediate access to the vehicle once your application has been approved and you receive finance. Therefore, ownership is not an issue for business owners who need access to a car. However, you must repay the loan in full before the mortgage over the car is cleared. Only then can the title be transferred into your name.
What will be the Interest Rate of the Loan?
Of course, this is subject to some degree of negotiation, however, as a general rule of thumb, interest rates for a chattel mortgage should be lower than those of an unsecured loan since you have put up the car as collateral. At the start of the mortgage you also have the flexibility to decide whether fixed or variable interest rates work best for you and your business.
Are there Specific Fees or Charges?
You’ll need to discuss this matter with each financier, as ultimately, one agreement can vary to the next. Make sure you read all the terms and conditions. It is especially important to keep an eye on any provisions regarding early repayment fees, since these are quite common across chattel mortgages. If you know from the outset that you plan to repay the agreement early, you might be able to negotiate conditions to facilitate that.
What will my Repayments be and Should I Agree to a Balloon Payment?
This is something that you will need to take into consideration based on the underlying cash flow of your business, as well as any preferences you might have. Keep in mind, setting a fixed interest rate at the beginning of the agreement can give you more visibility than a variable rate. A balloon payment may give you more breathing space over the course of the loan to put aside spare cash, however, can you afford to make a lump sum at the end of the contract? Remember the car might not be worth as much as that balloon payment.
Is a Chattel Mortgage the Best Car Financing Option for me?
Ultimately, a chattel mortgage is just one option available to business owners to secure finance for a new car. You should weigh up all aspects of this type of agreement and compare it with other forms of financing, keeping in mind that there are distinct cash flow and tax benefits when taking out a chattel mortgage.
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.