For Australian businesses, a chattel mortgage can make the difference between having a revenue-producing vehicle or not. A chattel mortgage is simply a mortgage taken out against a “movable” item of property, i.e. a car, van, or another vehicle. However, this vehicle must be used for business purposes at least 50% of the time.
The term “chattel” refers to property. In this case, the property is the vehicle you plan to buy. Lenders must register their financial interest in the vehicle on the Personal Property Securities Register (PPSR) until you pay off the loan.
Even though you take ownership of the vehicle at the moment of purchase, you must make regular payments in order to pay off the loaned amount. Once you pay the vehicle off in full—including all extra fees, such as balloon payments—you’ll own it free and clear.
If you fail to meet your obligation while the mortgage is still in force and not paid off, however, the lender can repossess the vehicle.
You can also purchase other business assets with a chattel mortgage, such as movable heavy equipment. These equipment pieces may include backhoe loaders, excavators, skid steer loaders, and similar items.
A chattel mortgage is an attractive loan option for small business owners, start-ups, and self-employed business owners.
Some lenders even allow businesses to finance the vehicle’s entire purchase price, with no down payment. Also, they allow businesses to borrow government or transfer fees. Since the lender uses the purchase vehicle for security, there’s less risk, so chattel mortgages may feature lower interest rates.
Many chattel mortgages even allow borrowers to set up balloon lump sum payments at the end of the loan’s term to lower the monthly payment. For a start-up whose main challenge is cash flow, this option can be a game-changer. It will, however, increase your total interest. If the investment helps you rake in more profit, though, it’s a wise use of your money.
Although both individuals and businesses can take advantage of a chattel mortgage, you must use the purchased asset primarily for business. To qualify, you must use the vehicle for business purposes at least 50% of the time it’s on the road.
Many business owners use the chattel mortgage option not only to improve their cash flow but also to claim a tax deduction. If you’ve registered for GST on a cash basis, you may claim the GST back as a credit on your next business activity statement (BAS). Be sure to check with your accountant for eligibility before you apply for the mortgage.
Many lenders offer flexible loan terms—a major advantage when you’re just starting a business or trying to take your existing business to the next level. If you’re in the market for a new business vehicle, it pays to look into whether a low-cost chattel mortgage might be right for your needs.
With our wide range of contacts and our extensive market experience, we can find an excellent chattel loan option that will suit your business. We’ll also make sure that your chattel mortgage is cost-effective, with minimal extra costs.
The best way to discover if a chattel mortgage is right for your business is to sit down with one of our finance consultants to look over your options. We’ll run the numbers and come up with a loan that meets your criteria, has the lowest interest rates possible, and positions you perfectly to leverage your new vehicle as you bring in more revenue.
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