Chattel mortgage business finance
When you need to purchase a new vehicle or a number of new vehicles for your business, there are various options you could explore in terms of financing. One that you might find suitable is chattel mortgage business finance; a commercial financial product where you take ownership of the vehicle – known as the chattel – or vehicles at the time you buy. It's a straightforward loan transaction, and for businesses it may be particularly attractive as there could be tax advantages.
How does chattel mortgage business finance work?
When you buy a new vehicle for your business, and take ownership of your purchase, your lender will take out a mortgage over the chattel to secure the loan by registering an interest over the vehicle with the Personal Property Securities Register (PPSR). This means that if you fail to pay off the amount loaned in the time agreed, and are not making your regular monthly payments, the lender can repossess the vehicle. Once you have finished paying off the loan as per the contract, the lender removes the security interest, giving you clear title to the vehicle.
Why do people use chattel mortgage business finance?
Using a chattel mortgage is a tried and tested way to afford a new vehicle for your business. It allows you to own the vehicle from the start of the loan period but instead of you having to pay out a large amount of capital, you can structure your cash flow to make it much easier to pay off. At the end of the agreement, your business then has another asset.
What are the main features?
There are a number of benefits a business can get from taking out a chattel mortgage. These include:
- Flexible contract terms: These can range from one to five years (12 to 60 months).
- Tailoring the loan to a budget: By applying a residual value (balloon) to the contract you can tailor your monthly repayments in a way that suits your budget.
- Fixed rates: Interest rates are fixed, as are monthly repayments so you know what your costs are in advance. You can also put down a cash or trade-in deposit to reduce the principal sum to be borrowed.
- Tax deductions: When you use the vehicle for business purposes, you can get a tax reduction, so if you are registered for Goods and Services Tax (GST) you can have an input credit on your next Business Activity Statement (BAS) by claiming the GST that the vehicle's price contains.
- Lower interest rates: As the vehicle has the finance secured against it, interest rates will be lower.
What are the pros and cons of chattel mortgage business finance?
This type of finance enables you to buy the vehicle you want quickly and at competitive rates, with the risk being that if you fail to repay the loan in the agreed period of time you are likely to lose the vehicle and, consequently, any money you have previously repaid.