- Posted 14 Jan
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When it comes to financing your new car, you might find the process confusing, particularly if you don’t know what type of car loan you can access. After all, there are numerous ways to finance your new set of wheels, and to get the best deal; you’re going to have to be pretty proactive and do some research.
Relying on a basic loan outlined by your dealer may not always be your best option.
One of the more useful, but unknown car finance options available is the “Car Chattel Mortgage”. The title of this product is a little confusing. You may ask yourself, “Do I take a mortgage out on my car?” Well, not really.
If we look past the rather unusual name, this loan product offers some interesting benefits. It’s actually not as confusing or bizarre as it sounds. Here’s why:
1. The basics
With a Car Chattel Mortgage (CCM), the lender will give you the necessary funding to buy your car, and you will own the car in its entirety.
What the lender then does is where this type of loan gets interesting. The Lender will actually take out a ‘mortgage’ against the car and use this as the security for the loan. They then must register this with the ASIC.
This is called a “Fixed and Floating Charge”. The catch is that for this type of loan, the car must be used mostly for business purposes (at least 50%).
2. Who is this loan for?
This type of Loan is best suited for businesses, sole traders, trusts, partnerships, or anyone who holds an ABN.
It’s not really for somebody who doesn’t have a business, as in the car will be used for non-business related instances most of the time. You won’t be able to fully benefit from the tax incentives and unless you could prove that the car is being used for business instances more than 50% of the time, you’re not eligible for this type of loan.
3. The details
Once you’ve gone through the basic outlines of the loan as listed above, the rest of the loan works pretty much like any normal loan.
You make your payments based on a repayment schedule. The interest will be calculated and a term will be agreed upon, typically 1-5 years.
You could also have one big payment at the end of the loan term, sometimes called a “balloon” payment. Such a payment can help to lower the regular monthly payments. Your loan officer can help you with this.
4. Advantages and Benefits
- You have fixed payments.
- Interest rates can be lower (this is because loan is secured against the car).
- Tax benefits, especially with regard to interest claims and depreciation.
- Some customers, namely those that are GST registered, can claim the GST portion of the purchase price.
Think about whether a Car Chattel Mortgage is the right loan product for you. If, in reading the above descriptions, you feel you may be a good applicant for such a loan, contact our friendly team today to discuss your next steps.