Chattel Mortgages

Learn how to purchase a car through a chattel mortgage

If your company is considering getting a vehicle that will only be used for business purposes then you need to consider getting a chattel mortgage. A chattel mortgage can be used to finance a business car. You’ll be surprised at what a chattel mortgage can give you and how they can help you claim ownership of a vehicle.

If you’re going to use the car for business purposes then you’ll find that there are benefits to taking out a chattel mortgage over another financing option. Chattel mortgages have the best rates available and can be claimed in your tax return. So you get instant access to your vehicle without having to wait for a more expensive car loan.

What are chattel mortgages?

Basically a chattel mortgage is a type of loan that lending institutions offer specifically to buy business cars. When you take on a chattel mortgage you become the mortgagee and the legal owner of the vehicle. The institution that lends you the money becomes the mortgagor and will use the vehicle as security for the loan. If you default on the loan and fail to pay back the money then you could lose the car.

A chattel mortgage is a combination of a loan and a lease. With a chattel mortgage you are given the best rates for the loan and are even offered tax incentives. You are also able to get instant access to your car without having to wait for a car loan.

How do chattel mortgages work?

When you take out a chattel mortgage you are given money in advance in order to buy equipment. You become the legal owner of the equipment as soon as you buy it. The lender will take a mortgage on the equipment as the loan security and register your interest over it with the Personal Property Securities Register (PPSR).

In order to get a chattel mortgage you need to go to the lending institution of your choice and pick the right mortgage for you and your needs. Then you fill out the application form and hand over any requirements such as identification and proof of income and send it off to the lender. After that you just wait to hear the good news that your loan is approved or the bad news that it hasn’t been. There are some things about loans that you should take a look at and keep in mind when taking out a loan. This includes the interest rate, hidden fees and charges.

What features do chattel mortgages have?

  • They are for business use only: A chattel mortgage can only be used to buy a car that is fofr business purposes only without capital overlay.
  • They are tax-deductible: When you take out a chattel mortgage you can claim depreciation, running cost, and interest payment as tax deductions. You are also able to claim the full input tax credit from GST-incurred expenses.
  • You own the vehicle: When everything is said and done and the chattel mortgage is paid off you’re still the legal owner of the vehicle you’ve bought.
  • They have fixed interest rates: When you take out a chattel mortgage you can be sure that you’ll be paying only the agreed amount because the interest rate never changes. With a variable amount you can sometimes end up paying less, but you also sometimes end up paying more. Fixed interest rates provide security.

The tax benefits of taking out a chattel mortgage

The main benefit to using a chattel mortgage as your loan of choice is that you own the vehicle as soon as you purchase the vehicle. The lender gives you all the money you need to buy the car and anything else you need for it.

When you take out a chattel mortgage you get a lot of benefits if you’re registered with GST on a cash accounting basis. With this you can take the GST of the vehicle as an Input Tax Credit on the Business Activity Statement (BAS). The GST is also only charged on the initial purchasing price of the vehicle and not on any monthly repayments.

On top of all of this you are also able to cliam a tax deduction on interest charges and the depreciation of the vehicle. You do need to remember that there is a limit to the depreciation claim and you will need to prove that the car has depreciated using evidence such as documents.

The additional benefits of a chattel mortgage

There are other benefits to taking out a chattel mortgage. These include:

  • No capital outlay: When you borrow using a chattel mortgage you don’t need to spend any of your own money as the lender covers all the costs
  • Flexible terms: Chattel mortgages come with more flexible terms than a typical personal loan. This includes fixed payments that are calculated before the loan is taken out. A chattel mortgage is much easier to budget around than a personal loan. You know exactly how much you’ll be paying back.
  • Full ownership: When the chattel mortgage is fully paid off you become the sole legal owner of the car and there’s no longer any risk of it being repossessed.
  • Residual value application: You can apply the residual value (usually called a balloon payment) to the contract and tailor the monthly repayments to your budget better.

Sole traders, people in partnerships and companies that account soley through cash will see that there even more benefits for them.

Different types of business car loans

If you are interested in getting a different kind of loan you’ll find that there are plenty of loans out there for any purpose. Consider one of the following car loan options the next time you’re buying a business car.

  • Commercial hire purchase: A commercial hire purchase is when a company hires out a car for a set amount of time and pays on a monthly basis to keep the car.
  • Finance lease: A finance lease is when businesses use a car as a commercial vehicle and enjoy the benefits of ownership even though the lending company is still technically the legal owner of the car.
  • Novated lease: A novated lease isn’t technically a business car loan. It’s more of a way for employees to sacrifice their salary to receive a car. This option is best for employees and employers alike to protect themselves using a tax shield.

A chattel mortgage is a loan that is used to purchase a vehicle for business purposes. You own the vehicle but it is still used for security until you pay off the loan.

When you get a chattel mortgage be sure to hop around to find the best offer. Always compare the options you have to find the right deal for you.