Business Chattel Mortgage
Need a car loan for your business? Consider a chattel mortgage
Although a chattel mortgage has the word ‘mortgage’ in the title, it is not actually associated with real estate property or land ownership. In fact, these types of loans are related to the purchase of business vehicles or any other business asset.
How do chattel mortgages compare to other vehicle or equipment loans?
Normally, a chattel mortgage is used to buy a car or other business asset used for your business. The lender will provide you the money to buy a vehicle, allowing you to be the legal owner immediately and they take a charge over it. In order to qualify for the loan, you will need to sign a contract promising to use the vehicle or asset at least half of the time for business purposes.
This agreement aspect is where the term ‘mortgage’ applies. Similar to a home loan, the lender provides a loan on your new vehicle and they hold a mortgage over it, meaning their investment is secure if you default on your repayments.
Chattel mortgage repayments
Like any regular loan agreement you agree on a repayment timetable and this will normally include pre-calculated fixed interest rate that will stick for between one year and in some cases up to seven years depending on the asset purchased and the lender.
- Often you may not need to provide your current financial statements – many lenders have “Low-Doc” options;
- The interest is often tax deductible on the loan based on usage – you should discuss this with your accountant for your specific circumstances;
- Repayments can be organised to suit your business cash flow;
- A deposit may not be required, but you can pay a deposit or have a balloon payment loan structure to lower your monthly payments;
- Because the loan is secured against the vehicle, the interest rate is often a much lower than your typical bank loan or business loan;
- If you have GST registration, you may be able to include the vehicle cost on your BAS – you should discuss this fully with your accountant;
- As the business is the owner the vehicle or asset depreciation claim is available to you as owner in terms of the ratio of business usage – again this should be discussed fully with your accountant.
Want more information on chattel mortgages?
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