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Understanding Chattel Mortgages

– Features, Benefits, And Everything You Need To Know

Do you need equipment to run your small business? Or your staff needs a car to commute to and from work?

To conveniently report to work, 2.457 million Australians say they intend to buy a new car shortly. This figure represents a rise of 53,000 from July this year. It was also found that there are now 679,000 more Australians directly or indirectly involved in car financing in the coming year than in the previous quarter—an increase of 9.2%.

If you want to buy movable equipment or vehicles for your business, you should consider how you will pay for them. Australian business owners have a variety of loan options at their disposal. Therefore, you might feel a little confused when the time comes to get a loan for a piece of business equipment or a car. This is where a chattel mortgage comes into play. 

If you’re wondering how to mortgage a chattel, the facts in this guide should answer your concerns. Here is what we’ll discuss: 

What Is A Chattel Mortgage?

Simply put, “chattel” describes the moveable or mobile personal property. Automobiles,  construction equipment, cars, aeroplanes, and mobile houses are chattels. Understandably, they are all costly. The lenders contribute money to buy the asset and register their security interest on the Personal Property Securities Register (PPSR) for the duration of the loan. 

A Chattel Mortgage is similar to a traditional mortgage, and you will fully own the asset after all loan payments have been paid. Moreover, Chattel Mortgage loans enable business owners to stretch the expenses across monthly instalments instead of making an upfront payment.

How Does A Chattel Mortgage Work?

If you want to buy a car, equipment, or assets, a lender could provide you with a chattel mortgage loan. That agreement gives the lender confidence that you will repay the loan since the asset is used as security.  

Loans like finance lease or hire purchases differ from chattel mortgages in several ways. Like when you rent a vehicle or piece of equipment from a lender and make monthly payments. Financial leases are arrangements in which the lender owns the equipment or car, and the borrower has the option to acquire it for a fee. However, with a chattel mortgage, the equipment or vehicle becomes the borrower’s exclusive property when the loan is repaid.

Who Are Chattel Mortgages For? 

Chattel mortgages are ideal for small business owners who need financing to support business processes. A chattel mortgage is often utilised when the funded asset is intended to be used exclusively or primarily for business purposes (you will use the asset for business more than 50% of the time). Although there are many other forms of moveable equipment that a lender may finance with a chattel mortgage, cars are the most common option.

How To Apply For A Chattel Mortgage?

Researching loan providers was always the best way to start. Some providers are more reputable and may also provide better lending conditions. However, with advancements in financial technology, using our guides to provide valuable information is the simplest option.

At Askfunding, we do all the labour-intensive work on your behalf. Submit a loan enquiry using our website to get started, and in a matter of minutes, we’ll be able to compare your credit profile to the requirements and get you a list of actual offers with actual rates.

Are You Worried About Harming Your Credit Score? 

We have your back. Your credit score won’t be affected by our financial enquiry. It only takes a few minutes to fill out the form, and when you’re done, you’ll know what your options are. It is then up to you to choose the most suitable chattel mortgage solution for your needs.

What Are Balloon Payments?

Balloon payments are significant, one-time payments made at the end of the term of a chattel mortgage. The phrase “balloon payment” refers to the payment’s inflated size compared to earlier instalments made throughout the loan.

A vital advantage of this arrangement is reducing monthly payments by making a substantial balloon payment, which may help your business’s cash flow for ongoing expenses. However, confirming that balloon payment is feasible and won’t harm your company’s financial status is advisable before agreeing.

What Are The Pros And Cons Of Chattel Mortgages?

A chattel mortgage is a popular choice for small business owners looking for financing since it offers significant repayment flexibility. There may be instances where the entire loan is funded, eliminating the requirement for a down payment. 

Pros Of A Chattel Mortgage

A chattel mortgage  has the following advantages:

✔️Lower Interest Rate

Typically, a Chattel Mortgage will have a reduced interest rate than unsecured loans because of the lender’s security interest in the collateral.

✔️Gain Access To 100% Financing

You won’t need to make a down payment since you may borrow up to the entire selling price of your car or piece of equipment. You can also incorporate on-road expenses in your loan. 

✔️Flexible Payment Terms.

Payback period: one to seven years. As a borrower, you can repay your loan in full in as short as 12 months or extend payments for up to five to seven years.

✔️Decide On A Payback Schedule

With Askfunding, in addition to choosing your loan duration, you may choose to make payments on a monthly, fortnightly, or weekly schedule to suit your budget.

  ✔️Tax Credit Advantages.

Businesses can write off depreciation and interest expenses depending on how much of the asset is used for business purposes or, in certain circumstances, write off input text credits practically immediately since the item’s GST inclusive price is financed. Businesses having an ABN generally profit from this.

Cons Of A Chattel Mortgage

The use of chattel mortgages is not without risk.

❌Must Be Used For Business

A chattel mortgage requires that your asset be utilised for commercial purposes at least 50% of the time.

❌You Are Responsible For Paying All Operating Expenses.

Your lender does not arrange for the upkeep and operation of your vehicle or equipment; you are responsible for making such arrangements and paying for them.

❌Asset Updating Is More Challenging.

A chattel mortgage is more time- and labour-intensive to change out than a lease if you want to continue with the most recent model of automobile or make of equipment.

Exempt From The National Consumer Credit Protection Act (NCCP)

Since it is a business loan, you may be approved for a loan inappropriate for your situation or more obligation than you can reasonably afford.

Can You Refinance A Chattel Mortgage?

If you have a chattel mortgage and have had it for more than a year, shopping around for a cheaper interest rate can be worthwhile. In addition, you can refinish your car’s residual value (also known as the balloon payment) at the end of the loan period.

How Much Of A Down Payment Is Required For A Chattel Mortgage?

Your down payment may be influenced by the loan, the lender, and your creditworthiness. For instance, applicants with credit scores over 500 must lay down at least 5% of the mortgage balance, while those with lower scores must contribute at least 10%.

What Do I Need To Qualify For A Chattel Mortgage?

Chattel mortgages need that you have an Australian Business Number (ABN). Any asset that you utilise a chattel mortgage to finance has to be used at least 51% of the time for commercial purposes. Additionally, you will need a down payment provided you finance the loan. A solid credit rating is also essential to be eligible for favourable loan conditions.

How Do I Qualify For The Best Rate On A Chattel Mortgage?

Similar requirements apply to both best rate consumer loan financing and best rate chattel mortgage financing. The degree of perceived risk in lending the money to the borrower determines the interest rate that the lender will provide you. Simply put, the interest rate is inversely proportional to risk.

So what factors are most important in deciding your rate? Although each lender has different lending requirements, essential elements that affect the rate you are given include the kind and condition of the movable asset, the amount you desire to borrow, the length of the loan, and obviously, your creditworthiness and income. 

What Are The Tax Benefits Of A Chattel Mortgage?

A chattel mortgage is a premium choice for business owners and those with an ABN. In addition to potentially lowering their tax and GST expenses, it enables consumers to get an excellent bargain on financing.

Interest payments on a chattel mortgage are one tax break that companies often use. 

Also, chattel mortgage’s interest fees are allowable deductions on your Business Activity Statement. (BAS.) 

Moreover, businesses who use a cash accounting system and are GST registered may additionally claim the GST they paid on the original purchase as an Input Tax Credit on their succeeding BAS. Chattel mortgages are adaptable and affordable choices for business vehicle financing. With fixed interest rates, terms vary from 12 to 60 months. 

Businesses may seek 100% financing and amortise other costs like insurance into the loan. The best part is that you can schedule for repayments in advance since you’ll be able to track your monthly expenditure accurately. 

Where Can I Get A Chattel Mortgage?

Online and brick-and-mortar lenders provide chattel mortgages; some focus on particular assets, including mobile homes, aeroplanes, or construction equipment. Financing may also be arranged by the seller, such as a dealer of prefabricated homes. But you should compare prices to get the best bargain.

What Happens After A Chattel Mortgage Is Paid Off?

You have three options for paying off your residual after your chattel mortgage expires:

  1. You may sell the item or car or trade it in to settle the residual and get another chattel mortgage.
  2. Extend the length of your present loan by refinancing the residue
  3. Take complete possession by paying the residue in cash.

Why Trust Askfunding With Your Chattel Mortgage?

Askfunding is the best place to find and secure the available chattel mortgage deals. We provide customised plans and alternatives and guide you through the process. Everything starts with a short quotation, and from there, we’ll proceed with your application.

👍Expert Advisors On Your Side

Our knowledgeable loan experts will assist you in selecting the right loan for your requirements and ensure your application satisfies your needs.

👍Dependable Company

We’re one of Australia’s most regarded car and equipment financing providers because we know how to find the ideal deal for you.

👍Individually Tailored Borrowing Costs 

You can be confident that we will customise your loan to your requirements since every applicant will get an option and rate based on their unique financial status.

Ready For Your Next Move?—We’ll Help You Simplify The Complex Funding  Process

Chattel mortgage can provide several advantages over a standard loan, including higher loan amounts, flexible repayment options, and perhaps a reduced interest rate. However, unlike a typical loan, chattel mortgages are not covered by the same legal and consumer safeguards. There is a potential for over-borrowing, which might put you in financial difficulties, even though it can simplify things for you to apply for a loan without worrying about establishing your income.

It would be best to not only consider the interest rate when choosing how to finance your company’s cars or equipment. It would help if you also considered each financing option’s expenses and other advantages (or disadvantages). Then again, before applying for any loan product, it is crucial to do your due research and get independent financial and legal advice. 

At Askfunding, we speak fluent mortgage – ask us a question!