Chattel Mortgage Loans A chattel mortgage for the vehicle or equipment your business runs on.
A car or equipment loan drafted for business use. You own the asset from day one; the lender holds a security interest until the last repayment.
Business use over 50% · Up to 100% financed · Based in Bella Vista, NSW
What is a chattel mortgage?
Chattel mortgages are mainly used to buy an asset for business use. They can only be used when the asset will be used wholly or predominantly for business purposes, that is, more than 50% of the time.
Much like a regular mortgage, the lender provides the funds to buy the asset (the chattel) and records its security interest on the Personal Property Securities Register (PPSR) for the life of the loan. Once you have made all your repayments, you have full ownership of the asset.
This type of loan is a popular option for the self-employed and for small business owners, because it offers flexibility around repayments. In some cases 100% of the purchase can be financed, so no deposit is needed up front.
The benefits
Car and equipment finance secured this way is a popular option among business owners and operators. These are the reasons why.
Interest rates
The loan is secured by the asset, so lenders see it as lower risk. It often comes with a lower interest rate than an unsecured loan.
Potential tax benefits
Because you own the asset, you may be able to claim the interest and depreciation, depending on the percentage of business use. Speak to your accountant about your situation.
Less personal liability
The asset you buy is the primary security, so the lender looks to it first rather than to your home or other assets. Directors are commonly asked for a guarantee, and any shortfall after the asset is sold can still be owed.
Higher loan values and longer terms
Lenders generally allow higher maximum loan amounts and longer terms in which to repay. Terms commonly run from 1 to 7 years, and can be shorter for an older used vehicle.
How it works
- You choose the vehicle or equipment, new or used, and the lender pays the supplier. The asset is registered in your name from day one.
- The lender normally registers a security interest over the asset on the Personal Property Securities Register for the life of the loan.
- You make fixed repayments over an agreed term, generally 1 to 7 years, with the option of a balloon payment at the end to keep the regular repayments lower.
- When the last repayment is made, the lender releases its security and the asset is yours outright.
Up to 100% of the purchase can be financed, so no deposit may be needed, and because the loan is secured by the asset the rate is usually lower than an unsecured loan's. Chattel mortgage car finance works the same way for a ute, van or passenger car as it does for equipment, and loan lenders range from the major banks to specialist asset financiers. Our leasing calculator compares repayment structures before you choose.
Chattel mortgage, lease or hire purchase?
Under a lease the financier owns the asset and you pay to use it, handing it back or paying a residual at the end. Under hire purchase you hire the asset and ownership passes to you with the final payment. Under a chattel mortgage you own the asset from the start and the lender simply holds security over it. Ownership matters for tax: with a loan you may be able to claim depreciation and the interest according to the asset's business use, and a business registered for GST may be able to claim the GST on the purchase price in its next activity statement rather than over the term. Your accountant can tell you which structure suits your business.
Who it suits
Sole traders, the self-employed and small businesses buying a ute, van, car or piece of equipment used predominantly for business. It is the usual structure for a business car loan because the business owns the vehicle, the repayments are flexible, and the GST and depreciation treatment often favours ownership. For a car financed through your salary as an employee, a novated lease is the alternative; for larger plant and machinery, see equipment finance.
Frequently asked questions
What is a chattel mortgage?
A loan to buy a vehicle or equipment for business use, where you own the asset from day one and the lender holds a registered security interest over it until the loan is repaid. It is a common structure for a business car loan in Australia.
What are the benefits of a chattel mortgage?
Usually lower interest rates than an unsecured loan because the asset is the security; potential tax benefits, since you own the asset and may claim depreciation and interest according to its business use; the lender's primary security is the asset itself rather than your home, although directors are commonly asked for a guarantee; and higher loan values and longer terms than unsecured finance.
Is a chattel mortgage tax-deductible?
It can be. Because you own the asset, you may be able to claim the interest and depreciation in proportion to the asset's business use, and a business registered for GST may be able to claim the GST on the purchase price up front. The rules depend on your business and the asset, so speak to your accountant.
How long can a chattel mortgage run?
Terms generally range from 1 to 7 years, depending on the repayment you can afford and the asset. For a used vehicle the term may be shorter, depending on its age. A longer term means lower repayments but more interest overall.
Can I have a balloon payment on a chattel mortgage?
Yes. A balloon is a lump sum at the end of the term that reduces the regular repayments. At the end you pay it, refinance it or trade the vehicle in and start again. Speak to one of our finance specialists about whether a balloon suits your cash flow.
Do I need a deposit for a chattel mortgage?
Not necessarily. In many cases up to 100% of the purchase can be financed, so no deposit is needed; a deposit or trade-in reduces the loan and the repayments if you prefer.
Can I use a chattel mortgage for a used car?
Yes, for new or used vehicles and equipment, bought from a dealer or privately, subject to the lender's rules on the asset's age and condition. The term for an older vehicle may be shorter.
What is the difference between a chattel mortgage and a car loan?
The first is a car loan drafted for business purposes: the business owns the vehicle, the asset must be used predominantly for business, and the tax treatment follows ownership. A consumer car loan is for personal use and is regulated differently. If you are buying a car for personal use through your employer, see novated lease loans.
What are the requirements for a chattel mortgage?
Lenders generally ask for an ABN, that the vehicle or equipment will be used predominantly for business, and evidence the business can meet the repayments: bank statements, financial statements or a trading history. Each lender's rules on the asset's age, the loan size and low doc options differ, which is where a broker earns their keep.
What interest rate does a chattel mortgage have?
Chattel mortgage rates are usually fixed for the term and sit below unsecured business loan rates because the asset is security. The rate depends on the asset and its age, the term, any balloon, and the strength of the business, so lenders quote it for your purchase rather than publishing one rate; we compare the quotes for you.
Is a chattel mortgage a one-off payment?
No. You make regular repayments, usually monthly, over the agreed term, with an optional balloon payment at the end. The lender pays the supplier in one payment at the start; you repay the lender over time.
Do you need a chattel mortgage?
If you are looking to invest in new equipment or upgrade your business assets, you've come to the right place. Speak to one of our professional finance specialists today!
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