Chattel Mortgages

What is a Chattel Mortgage?

Also known as a secured car loan, goods loan, or equipment loan, a chattel mortgage is a type of business loan used to purchase a vehicle or equipment. Both businesses and individuals may be eligible, provided the asset is primarily used for business purposes.

How does a chattel mortgage work?

‘Chattel’ refers to the vehicle or piece of equipment, and ‘mortgage’ refers to the loan agreement. Typically, a lender will provide a borrower with the funds to purchase the vehicle or equipment. The borrower takes ownership at the time of purchase, with the lender then using the vehicle or equipment as security against the loan. Once the loan is completely repaid, the borrower will have full unconditional ownership of the vehicle or equipment. While loan terms can vary, they are usually fixed-rate with a term of 2–5 years.

Chattel mortgage vs Hire purchase

Similar to a traditional, fixed-rate mortgage, a chattel mortgage gives you ownership of the vehicle or equipment straightaway. The vehicle or equipment is then used as security against the loan. A lease, however, is a long-term rental agreement and in the majority of cases does not result in ownership at the end of the contract. Usually, the lessor is also responsible for any maintenance and repairs needed during the length of the lease.

Advantages and disadvantages of a chattel mortgage

As with any financing option there are advantages and disadvantages. It’s important to consider both so you can better determine the right solution for you.

Advantages

Lower interest rates

Generally, because the purchased vehicle or equipment is used to secure the loan, interest rates for chattel mortgages are lower. Lower interest rates can save you money long term.

Fixed rate repayments

Chattel mortgage repayments are fixed-rate, which offers businesses predictability and stability, allowing them to better manage their spending and budgets.

Immediate ownership

A chattel mortgage gives you ownership from the beginning. Immediate ownership allows your vehicle or equipment to be considered both an asset and a liability, as opposed to just a liability. This is important for businesses as assets can add value to a company and increase equity.

Tax benefits

Provided you are predominantly using your vehicle or equipment for business purposes, you may be eligible for certain tax deductions come tax time. What and how much you can claim will depend on your individual circumstances. It’s best to seek advice from your account or financial advisor when considering what tax benefits your business may be eligible for.

Disadvantages

Repossession

As the vehicle or equipment is used to secure the chattel mortgage, defaulting on repayments can lead to the repossession of the vehicle or equipment by the lender. However, this is easily avoidable by ensuring you make repayments on time, or consult with your lender directly as soon as you face any financial difficulties.

Maintenance and repairs

As you take ownership of the vehicle or equipment from the start, you are responsible for servicing, maintaining, and fixing the vehicle or equipment.

Unregulated

Typically, chattel mortgages are not regulated by the National Consumer Credit Protection Act (NCCP Act). This means that lenders are not required to perform the usual regulatory checks as they would for other loan types such as home loans. This could lead to some borrowers financially overextending or over committing themselves. It’s important that borrowers read all chattel mortgage terms and conditions carefully and assess their own financial health before signing any loan agreements. If you’re unsure, speaking with a business loan broker may help. They can guide you through the process, compare options available, and assist you in finding a loan that suits your needs.

Chattel mortgage eligibility

Each lender will have their own eligibility criteria and individual requirements. However, generally, a chattel mortgage can be accessed by either a business or an individual as long as their purchase is used predominantly for business purposes.

To apply for a chattel mortgage, you may also need:

• Your ABN or ACN
• Personal identification
• Business verification
• Information on the vehicle you intend to purchase
• A ‘good’ credit score

If you’re concerned about bad credit or even just unsure of the application process, consulting a business loan broker is a great way to alleviate application anxiety and find the most appropriate options for you. At Oceania Finance, our business loan brokers are experts at sorting through complicated jargon and negotiating on your behalf to get the best terms and rates for you.

Do you need an ABN for a chattel mortgage?

Chattel mortgages are designed for businesses, so you’ll usually need to have an active Australian Business Number (ABN) to apply. Sole traders, partnerships, and companies can all be eligible.

How to get a chattel mortgage

The most common ways to get a chattel mortgage include:

• Applying directly with a lender – once you have done your research and found a lender or mortgage that’s right for you, you can reach out to them directly to get the ball rolling.
• Contacting a business loan broker – whether you’re unsure of your next move or just keen to offload the application process to a more experienced party, a business loan broker can negotiate on your behalf to get you a mortgage that’s tailored to your needs.

Need to consult a business loan broker?

No matter who you are, navigating the application process for any loan can be difficult and stressful. That’s why our business loan brokers at Oceania Finance are committed to providing a personalised and comprehensive service so that we can get you the right mortgage with the best terms.

Ready to take the next step? Contact our friendly mortgage brokers today to get started.