What You Need To Know About Chattel Mortgage

A chattel mortgage is one of the most recognizable car finance options and is the most preferred by most clients with commercial interests, for instance, business owners. This is because this was designed especially for business owners and commercial undertakings. However, while this may be a good idea for some, it may not apply to others.

So how does chattel mortgage work? What are the advantages of going for this car finance option? Can everybody take advantage of a chattel mortgage? What makes it different from consumer car loans? Read on to find out.

What is it?

First, what is Chattel mortgage? In a nutshell, for a customer to be able to acquire a vehicle, the lending company comes in to advance the funds. Once the chattel or vehicle is purchased, ownership of it automatically belongs to the customer. However, a mortgage will be taken out on the vehicle by the finance company, and this will be registered with a fixed and floating charge. This serves as the security for the loan.

Furthermore, the respective national credit bureaus also need to be informed of the finance company’s security interest on the chattel, so the transaction has to be registered with them. As soon as all balloon payments or residual values are paid off at the end of the loan term, the fixed and floating charge will be removed, as well as the finance company’s security interest on the vehicle. The title of the vehicle is then completely turned over to the customer.

What’s in it for you?

A chattel mortgage is well known to have plenty of benefits attached. First and foremost, the financing for the vehicle is secured in the lender’s side, so they are able to offer considerably lower interest rates. Monthly repayments are also fixed, as well as interest rates. A chattel mortgage is also offered with very flexible contract terms, ranging from 12 months to 60 months.

At the start of the purchase, the customer also has the option to reduce the monthly repayments and essentially, the total loan amount by simply doing a trade-in, or making a cash deposit up front. Lastly, monthly repayments can be further reduced by taking the option to make a balloon payment or residual value at the end of the loan term.

Chattel Mortgage also has some fantastic tax benefits attached. Customers can take advantage of a tax deduction if the vehicle is purchased solely for the purposes of business. If you are duly registered for GST, you can also claim the GST based on the price of the vehicle. Monthly repayments and balloon payments are not charged with GST, as well. Lastly, you can claim another tax deduction for the interest charges and depreciation value on the contract.

Is it a loan?

Consumer car loans and chattel mortgage are very similar in many ways, so it is easy enough to mistake one for the other. Bear in mind, however, that not everybody can take advantage of a chattel mortgage, and that is where the main difference lies. This is because a chattel mortgage can only be predominantly used for business purposes because it is strictly a commercial product. You will only qualify for a chattel mortgage if, at least 50% of the vehicle you are acquiring will be used for business.

You might wonder why there is such a distinction. This is how the lender ensures that you get the loan product that is most appropriate for you and your income, based on your documentation. So if you are a business but wish to take out a consumer car loan, you will need to use your individual name. On the other hand, you will not qualify for a chattel mortgage if you will only use the vehicle for personal purposes. However, you get to enjoy the same GST benefits and tax deductions either way because there are no differences, tax-wise.

Suffice it to say, there is much to enjoy from a chattel mortgage if you are a business owner on the market for a company vehicle or two. It is, therefore, a great idea to do your research and compare your various financing options, including chattel mortgage, in order to discover and ultimately choose the best product that’s most suitable for your specific business circumstances.