Finding the right business car finance, such as a Chattel Mortgage, can be confusing and tricky. There are many options available with it comes to car finance, and figuring out whether a Chattel Mortgage is right for your business is hard, particularly if you’ve never come across the term before.
What is a Chattel Mortgage?
The term is often misleading, as most people would associate the word ‘mortgage’ with owning property.
In the case of a car chattel mortgage, a lender will provide you with the funds to purchase your business vehicle, and you will be the owner of the car outright.
The lender will then take out a mortgage over the car as the security for the loan. In order to do this, they must register the chattel mortgage with ASIC. It is then referred to as a ‘Fixed and Floating Charge.’
Once this is established, the loan operates like a normal loan. You make payments based on a repayment schedule, interest is calculated and you can fix the term of the loan from 1-5 years.
You also have the option to have a balloon payment at the end of the contract, which would help to reduce your regular repayment amounts.
What Business Type does this Loan Suit?
This type of loan is best suited to companies, sole traders, trusts, partnerships or anyone that is the holder of an ABN number. The car must be used for business purposes for at least 50% of the time or more.
Chattel Mortgage Benefits
The benefits may not be immediately obvious, but they can include:
- Repayment amounts are fixed
- Interest rates available are lower due to the car being secured against the loan
- Tax benefits are available in relation to interest claims and depreciation
- GST registered businesses can claim the GST portion of the purchase price
This type of business car loan is a good option if you don’t have immediate access to funds for a business car. It’s also a good option if you are looking to own the car outright so that you can brand the car with your company details.
In comparison with other business car finance options, a car chattel mortgage provides you with access to lower interest rates due to the nature of the loan.
Risks Associated with a Chattel Mortgage
As with any type of business car finance, there are some risks associated with this type of loan. Once you understand what these are, you can put plans in place to minimise them. These can include:
- The car could depreciate quickly, losing it’s value and becoming a liability
- The balloon payment at the end of the contract is too much for your to pay
- You find it difficult to meet repayments and the car is taken back by the lender
Once you’re aware of these risks, you can put things in place to help minimise the likelihood of them happening. Chatting to our team of qualified experts can help make sure that this type of business car finance is your best option.
If you’d like to know more about a Chattel Mortgage and how it can be implemented into your business, contact us on 1300 735 557 and talk to our friendly team of business car finance experts.