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Learn more about chattel mortgage car finance

Explore chattel mortgage car finance to find a specialist car loan option for business use. Learn more about how chattel mortgages work, and what benefits they could offer your business.

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What is a chattel mortgage?

A chattel mortgage is a car financing option to buy a vehicle for work or business use. “Chattel” refers to movable property – in this case, the car being purchased. A chattel mortgage doesn't always have to be be for a buying a car - it could be used to buy trucks or other business equipment.

To be eligible for a chattel mortgage in Australia, the car or other vehicle being purchased will need to be used for business purposes more than 50 per cent of the time.

As well as letting business owners  benefit from access to a vehicle for work, other benefits of a chattel mortgage may include some tax benefits. For example, the car can be considered a business asset, allowing you to claim the GST from the vehicle’s purchase price as an an input tax credit on your next Business Activity Statement. 

You may also be able to claim the interest charges on the chattel mortgage and the vehicle's depreciation costs as tax deductions – check with the ATO and/or a tax accountant to learn more.  

Is a chattel mortgage a lease or a car loan?

A chattel mortgage is a type of secured car loan, where ownership of the car changes hands and repayments are made to a lender.

This is different to a car lease or hire purchase, where an individual or business pays for access to a car, but may not get the option to own the vehicle outright.

How does a chattel mortgage work?

A chattel mortgage works a lot like a secured car loan, where the risk of the loan is offset by the value of the vehicle. If repayments can’t be made, the financier can repossess and sell the car.

Unlike with a car lease or hire purchase, the business buying the car becomes the new owner at the start of the chattel mortgage, though they’ll still need to make loan repayments to the finance provider in instalments.

Chattel mortgages often have fixed interest rates, which should remain the same for the full term of the chattel mortgage. This should allow you to calculate your monthly payments and the total cost of the car in advance.

Another common feature of many chattel mortgages is the balloon payment. This is an arrangement repayments are only made on a percentage of the loan amount, leaving the rest as the balloon or residual value. At the end of the term, you can choose to either make the final balloon payment and own the car outright, or refinance the loan for the residual amount, potentially trading the car in for a different model. A balloon payment can help reduce the ongoing costs and improve your cash flow, though you may end up paying more in total interest charges if the loan takes longer to pay off.

Can you terminate a chattel mortgage early?

Some lenders may offer the options to pay off a chattel mortgage ahead of schedule, which could mean paying less in interest charges over the long term. 

However, keep in mind that these lenders may charge fees for paying a chattel mortgage early. It may be worth checking if any fees will apply, and considering whether the potential interest savings from terminating your chattel mortgage early will be worth the extra cost of fees. 

Can a chattel mortgage be for an individual?

While a chattel mortgage has to be for a vehicle to be used for work purposes, an individual may be able to make use of one if they are a sole trader, small business owner or similarly self-employed Australian. You’ll need to have an Australian Business Number (ABN), be registered for the Goods and Services Tax (GST) and have a clear credit history. 

What are chattel mortgage fees?

While chattel mortgage may have lower interest rates than some other car finance options such as unsecured car loans, remember that you may also need to pay fees to the lender. 

The fees you pay may be based on the age of the car being purchased – the older the vehicle, the higher the fees. These fees may include an establishment fee paid upfront when you first take out the chattel mortgage, or an ongoing fee that’s charged each month. 

It may be worth checking the comparison rate for a chattel mortgage. This combines the cost of interest charges and standard fees into a single percentage, to give you a better idea of the overall cost. 

Is there a chattel mortgage calculator?

Because a chattel mortgage works a lot like a secured car loan, you can often use a car loan calculator to estimate your repayments.

Simply enter the loan amount, loan term and interest rate to find how much it may cost, both in monthly repayments and in total over the long term.

Keep in mind that your repayments may be different if you choose a chattel mortgage with a balloon payment. This residual amount may be paid at the end of the loan term, or refinanced into a new loan, possibly trading in the old car for a new model.

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How do you get a chattel mortgage?

  1. Compare chattel mortgage options and work out which one may best suit your needs
  2. Contact the lender providing the chattel mortgage – you may be able to use an online application form, get in touch over the phone, or visit a branch.
  3. Supply documents – The lender may require confirmation of your ABN, that your business is registered for GST, and that you’ve been in business for at least six months. You may also need to provide business bank statements, as well as details of your permanent citizenship or residency.
  4. Pick up the car!

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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^Words such as "top", "best", "cheapest" or "lowest" are not a recommendation or rating of products. This page compares a range of products from selected providers and not all products or providers are included in the comparison. There is no such thing as a 'one- size-fits-all' financial product. The best loan, credit card, superannuation account or bank account for you might not be the best choice for someone else. Before selecting any financial product you should read the fine print carefully, including the product disclosure statement, target market determination fact sheet or terms and conditions document and obtain professional financial advice on whether a product is right for you and your finances.