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Are you a sole trader or business owner? Do you travel for work and need to buy a car for commercial purposes? Do your employees travel for business and need transport? If you’re looking to finance a car for business purposes, a chattel mortgage could be the right car loan for you. 

What is a chattel mortgage?

A chattel mortgage is a loan product built for business owners. It covers the cost of commercial equipment or vehicles that are used for business at least 50 per cent of the time. This loan product suits sole traders, companies and trustees.  

In the case of car loans, the chattel mortgage can cover 100 per cent of the car cost or more, but this depends on each lender’s terms.   

What does chattel mortgage mean?

A ‘chattel’ is defined as a piece of personal property that can be moved, such as a car. ‘Mortgage’ is defined as the financial agreement that allows you to borrow money from a lender to buy an asset. The lender takes title of the asset until you repay the debt. Chattel mortgages are only available to companies that prove the chattel is for business use, and must report this to the Australian Taxation Office (ATO). 

Chattel Mortgages vs. Consumer Car Loans

If you’re a sole trader or business owner considering a chattel mortgage, it’s important that you understand that you will not be protected by the National Consumer Credit Protection Act (NCCP). 

The National Consumer Credit Protection Act regulates licenced credit providers, to ensure that stringent credit checks are completed, and that information on fees and charges is provided upfront. As a chattel mortgage is created for business and has numerous tax advantages, it is not covered by these regulations. 

Choosing the right chattel mortgage for you

Comparing business car loans based on interest rates, fees and benefits can help you find the best chattel mortgage for your business. As with every loan product, it is crucial to compare your options before you sign anything. Loans can vary between lenders, so make sure you look at key features, to see which chattel mortgage is best for you. 

Fixed vs variable chattel mortgages

Firstly, you must decide on the type of loan and interest rate that you would like to be charged over the term of your car loan.  

Fixed interest rate:  A chattel mortgage with a fixed interest rate locks the borrower into a set interest rate for the entire loan. This means that the interest rate will not change. This can help you manage your business budget with stable monthly repayments. However, if your lender cuts their rates, the rate on your loan will stay the same. 

Variable interest rate: Chattel mortgages with variable rates can change at any time. If your lender decides to increase their interest rates, your repayments will increase, which could be costly. If they cut them, however, your repayments will fall. If you decide on a variable rate chattel mortgage, be sure to budget for a higher interest rate. This way, you won't be out of pocket if the rates rise unexpectedly. 

Is a chattel mortgage a secured loan?

A chattel mortgage and a secured car loan are similar, but they also have key differences. Before deciding if a secured car loan or a chattel mortgage is right for you, it's a good idea to compare their features. 

Similarities between secured car loans and chattel mortgages

Collateral: Secured car loans and chattel mortgages use the asset purchased as collateral on the loan, to reduce the risk to the lender. If you do not make repayments, the lender can recoup their losses by selling the car. 

Reduced Risk: If you default on your repayments for a secured car loan or chattel mortgage, the lender can repossess your vehicle and sell it to recover their losses. As both secured car loans and chattel mortgages have collateral as security on the loan, they are seen as lower financial risk. 

Lower interest rates: Reduced risk can sometimes mean lower interest rates on the car loan amount. Both secured car loans and chattel mortgages will most likely offer lower interest rates than unsecured loans. 

Differences between secured car loans and chattel mortgages

Purpose: The main difference between a secured car loan and a chattel mortgage is its purpose. With a chattel mortgage, you must prove you are primarily using the car for commercial purposes. A secured car loan is primarily for consumers, and if used for business purposes, it will not provide the tax benefits that a chattel mortgage does. 

Tax benefits: Chattel mortgages allow you to claim various tax deductions not available to consumers, including an input credit on your Business Activity Statement (BAS) for the goods and services tax (GST) on the vehicle's price. You may also be eligible for the $30,000 instant asset write off. 

Loan term: Chattel mortgages can often have more flexible loan terms. The loan term for chattel mortgages can be between one and seven years. Secured car loans usually last between two and five years. 

Do you own the car outright with a chattel mortgage?

When you buy a vehicle or vehicles for your business using a chattel mortgage, your lender will take out a loan over the chattel to secure it. The lender will then register the mortgage the car with the Personal Property Securities Register (PPSR - previously REVS).  

Similar to a secured car loan, you will have immediate ownership over the vehicle, but the title will not be in your company name until you have repaid your debt. If you fail to meet your repayments or you cannot pay the loan back within the agreed loan term, your lender can repossess the car to cover their losses. Once you have repaid the loan amount in full, the lender will contact the PPSR to transfer the title into your name.  

After you have paid the loan amount and the interest, and the title is in your name, you will then own the car outright. If you do not want to own the car outright by transferring the title of the car to your business, you can opt to trade-in your car at the end of the loan term. 

Chattel Mortgage Trade-ins

A chattel mortgage can also offer opportunities for trade-ins that could help you reduce the cost of the vehicle. 

Initial deposit: When you take out a chattel mortgage, you can trade-in your current vehicle to use it as your deposit, if you do not have the money for a cash deposit. You can also opt to trade in your vehicle at the end of your loan term, if there is an outstanding amount. You will have an outstanding amount on your loan at the end of the term if you have opted for an interest-only repayment option or if you have organised for a balloon payment on your chattel mortgage. 

Interest-only and balloon payments: Some lenders will offer interest-only repayments, or allow you to set what is known as a balloon payment on your chattel mortgage. Both methods will mean that you have an outstanding amount on your loan when the term ends. This remaining debt can either be repaid with cash, or by trading in your vehicle.  

If you want to upgrade the vehicle at the end of the loan term on a chattel mortgage with interest-only repayments or a balloon payment, the trade-in can cover the residual value. This can help you to apply for a new loan, without any outstanding debt. Alternatively, if you pay the full loan amount and the interest, you can trade-in the vehicle and use its value to cover your initial deposit on a new chattel mortgage. 

Are chattel mortgage payments tax deductible?

Chattel mortgages can have various tax benefits for business owners, both upfront and throughout the loan term. As a chattel mortgages are used for business, you need to keep a logbook for the ATO, to prove you are using the car is being used for business purposes at least 50 per cent of the time.  

Reporting business use to the ATO

If you’re a business owner or are self employed and have an Australian Business Number (ABN) , you’ll already be aware of the importance of reporting and tracking your expenses. What you may not be aware of is that you can claim both the interest paid on a chattel mortgage as an expense and the GST on the vehicle.  

Claiming the GST on your vehicle’s price

If you are registered for the Goods and Services Tax (GST), you can have an input credit on your next Business Activity Statement (BAS) by claiming the GST included in the cost of the chattel. This can be done as soon as your chattel mortgage begins, which can be beneficial for business owners. 

How to claim the interest charged on your chattel mortgage

Just as you would claim fuel, repairs and maintenance as business expenses in your tax return, the interest paid on a chattel mortgage can be claimed as a tax deductible expense.  

Monitoring your expenses can be difficult, especially if you’re not a whiz with spreadsheets, numbers and the like. Luckily, the ATO has created a handy car expenses fact sheet and a smartphone app that allows you to track your expenses via ‘myDeductions’.  

When it comes to the end of the financial year, calculate the total interest you have paid, and upload this either into the ATO app or add this directly into your tax return as a deductible expense. You can claim 100 per cent of the interest you pay on the mortgage. 

Using the ATO App to track your trips

The ATO requires a logbook of at least 12 weeks to prove that you are using the car for business purposes more than 50% of the time. If you do not prove this, you will not be able to reap the tax benefits a chattel mortgage can bring.  

To track your trips in the app, click ‘Add Trip’, enter your vehicle details, make sure you select ‘Someone else owns or leases’ in the ownership section, then add in your trips as you make them.  

The app even has the option to add a GPS trip, so you can click start every time you drive for business purposes, making it simple when it comes to tax time. 

How to claim the $30,000 instant asset write off

The $30,000 Instant Asset Write-Off provides small businesses with an asset write-off of up to $30,000 for assets costing less than the instant asset write-off threshold which are purchased and used in the year that the write-off is claimed: 

  • $30,000 from 7.30pm AEDT on 2 April 2019
  • $25,000 from 29 January 2019 until before 7.30pm AEDT on 2 April 2019
  • $20,000 before 29 January 2019

Whether the threshold is GST exclusive or inclusive will depend on your GST status, however be sure that the entire cost of the asset is less than the instant asset write-off threshold, irrespective of any trade-in amount. 

In working out the amount you can claim, you must deduct your personal usage. The ATO explains the threshold clearly in the following example, yet they do have more examples on their website if you need a little more information on how it all works. 

ATO EXAMPLE: Immediate write-off

On 18 May 2018 Fiona buys a new powerful computer for $6,800 that she uses 80% of the time for business purposes and 20% of the time for personal purposes. She also bought a new printer for $700 which she uses 100% of the time for business purposes. For the computer, Fiona calculates her instant asset write-off as 80% (the business use proportion) of $6,800, so she claims $5,440. For the printer, she claims the entire cost of $700. 

Fiona includes the combined amount of $6,140 at label A of the Business and professional items schedule which is filled out when completing her tax return. 


Frequently asked questions

What is a chattel mortgage?

A chattel mortgage is a mortgage on a movable item. In the case of a car loan, the chattel is the vehicle. The lender maintains a mortgage over the chattel/vehicle until the loan is fully repaid.

What do I need to apply for a chattel mortgage?

Chattel mortgages are a form of secured car loan for businesses. The lender will set up a mortgage, while you take the car’s ownership. When the mortgage is paid off, you own the car. The borrowed amount is repaid through regular installments over a fixed period of time.

To qualify, you’ll have to meet the following chattel mortgage requirements:

  • The car should be used for business purposes at least 51 per cent of the time.
  • You must hold a valid Australian Business Number (ABN).
  • You must show you can service the loan on time
  • Identity proof
  • Financial records, such as profit and loss account and balance sheet
  • Details of the vehicle you want to buy
  • Bank statement for your business

Can an individual apply for a chattel mortgage?

Lenders offer chattel mortgages as a way to finance vehicles used for business purposes. Companies, as well as individuals, are eligible to apply for and receive chattel mortgages. The essential eligibility requirement is that the vehicle is used for business at least 51 per cent of the time. If you’re a tradesman and require a new utility vehicle to move equipment, you can apply for a chattel mortgage to finance the purchase.

A chattel mortgage for individuals is an option if you’re self-employed and have an Australian Business Number (ABN). You’ll also need to be registered for the Goods and Services Tax (GST) and have a clear credit history. Like all other loan types, you’ll have to prove your capability to service the loan to qualify for a chattel mortgage.

You’ll retain the ownership while the lender holds the vehicle as security for the loan in a similar way as they would a property with a home loan. You repay the borrowed amount in predetermined monthly instalments. Once you repay the entire loan amount, the lender will remove the mortgage.

What is a chattel mortgage used for?

A chattel mortgage is usually used to buy an asset - such as a car - for your company for business use. Relatively similar to regular mortgages, a chattel mortgage structure is based on a lender providing you with funds to purchase an asset while registering their security interest on the Personal Property Securities Register (PPSR) for the life of the loan. In this case, the asset is known as the chattel. After the loan has been repaid, you will have full ownership of the asset. 

A popular finance option, a chattel mortgage is usually preferred by self-employed or small business owners, due to flexible options available for repayment. In some cases, you may get 100 per cent of the cost of the asset, which means that no upfront deposit needs to be put down.

However, it’s important to note that a chattel mortgage is not regulated under the National Consumer Credit Protection Act. It’s therefore important to seek advice about the product and fully understand the agreement terms before signing.

What is a chattel mortgage fee?

A chattel mortgage fee is an amount you’ll pay the lender to procure the funds for a chattel mortgage.

You can use a chattel mortgage to finance vehicles used for your business at least 50 per cent of the time. It’s similar to a secured vehicle loan. The lender will give you the funds required to purchase the vehicle whilst you retain the ownership. The finance company then holds a mortgage on the vehicle, using the car as the security, until you repay the loan amount. At the end of the loan term or once you’ve paid it off, the lender will release the mortgage. Alternatively, you can opt to trade-in or refinance the residual value.

Can you get a chattel mortgage with bad credit?

Getting approval for a chattel mortgage with bad credit may be possible, given ‘chattel’ (usually a piece of equipment or car) is put up as security for the loan. That means if you fail to repay the loan, the creditor can recover the loaned amount by repossessing and selling the car or piece of equipment. This differs from unsecured car loans, where the asset is not tied to the loan and cannot be taken if you don’t meet the repayments. 

How to get a chattel mortgage?

Both businesses and individuals may use a chattel mortgage, provided that the car is being used predominantly for business purposes. 

To apply for a chattel mortgage, you need to first consider your options and choose a suitable lender that meets your requirements. Once you have selected a lender, you can apply for the loan online by filling out a form. If the lender doesn’t offer an online application process, you can either call them or visit their nearest branch. 

After you’ve applied, the lender will ask you to supply documents that confirm your identification, income, job profile, etc. If everything is in order, most lenders will arrange the loan’s settlement, so all you need to do is pick up your car!

How does a chattel mortgage work?

A chattel mortgage is a loan issued to a person or a corporation for movable property. The movable property could include automobiles, yachts or boats, mobile homes, caravans or trailers. The term chattel in chattel mortgage refers to the movable property  used as collateral or security for the loan.

In a chattel mortgage, the loan is backed by 'chattel,' which the lender retains ownership of until the full loan has been repaid. Usually, the interest rate charged on such mortgages is lower. Repayments can also be fixed, which means you know exactly how much you’re repaying each month.

The most significant benefit for the lender is that the properties held as insurance are movable and can be sold easily if the borrower defaults.

What are the chattel mortgage tax benefits?

Buying a vehicle with a chattel mortgage can help to reduce your tax burden. The tax benefits you can get from a chattel mortgage include:

  • Goods and Services Tax (GST): GST is paid when you buy a new vehicle. You can claim the GST credit for vehicles and other goods or services used for commercial use. The GST paid when you buy the car is claimed as an Input Tax Credit if your business is registered for the GST in your Bank Activity Statement (BAS).
  • Interest payments: You can claim the interest paid on your chattel mortgage as a deduction in your annual tax returns.
  • Depreciation: The longer you own the vehicle, its value will depreciate, and you can claim this depreciation as a tax deduction.

You should consult an experienced tax professional for more information about chattel mortgage tax benefits.

What is proof of income?

Before giving you a car loan, lenders will ask for proof of income – documentary evidence that you earn as much as you claim you earn. Lenders will typically want some combination of tax returns, pay slips and bank statements. The reason lenders want proof of income is because they want to be sure you have the means to repay the car loan.

What is a dealership?

A dealership is a car yard or a place where cars are sold.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

Can you terminate your chattel mortgage early?

Some lenders might provide you with an option to terminate your chattel mortgage early by repaying the full amount before the term is over. This way, your overall loan term decreases, therefore reducing the interest you need to pay.

It’s important to note that some lenders might charge a fee for you to pay off your chattel mortgage early. So, if you’re planning to terminate your chattel mortgage early, make sure you check if your lender allows you to do this. You should also determine if there are any additional fees or charges that you would need to pay to do this.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

What is CTP insurance?

CTP insurance, also known as compulsory third-party insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your CTP insurance will be used to pay any compensation due to anyone who might be injured or killed. However, CTP insurance doesn’t cover you for vehicle damage or theft.