When Should You Use Chattel Mortgage

When Should You Use Chattel Mortgage


A chattel mortgage is one of the most common ways businesses in Australia finance their vehicles today. This is a commercial finance product wherein the lender supplies the customer with the cash needed to purchase the automobile. From there, the customer will have to make regular repayments to the lender.


Immediately, the business gets to own the vehicle but the financier will have a ‘mortgage’ over it only until the loan has been repaid. This includes any balloon payment. It’s possible for businesses to get a balloon to reduce the amounts to repay. They may also schedule the repayments to finish paying the entire amount during the term.


Looking at using chattel mortgage for your business? speak to our specialists about the best way forward.


What is a Balloon Payment?


A balloon payment, also known as the residual amount, is the amount that isn’t repaid until the end of a contract. Customers get lower monthly repayments the higher their balloon payments are. It’s important to note that higher balloon payments will lead to higher amounts of interest that have to be paid throughout the loan period. The reason for this is because people won’t pay down the principal as quickly with this deal.


Customers can go with a balloon payment if they like having low repayments for better cash flow. Make sure that balloon payment is manageable for you so you have the option to sell the asset and pay off the loan.


saving for your new car final payment


What are the Tax Implications?


When it comes to a chattel mortgage, the GST or goods and services tax for the equipment or vehicle will be finance. Furthermore, the customer is entitled to claim their input tax credit immediately. It’s possible to also claim interest as well as depreciation costs, which depends on how much a piece of equipment or car is being used. 


Make sure you talk to an expert accountant first so they can provide you with advice on your situation and tax impacts. You can speak to our finance brokers for the basic tax questions but we recommend speaking with a professional tax law consultant.


Other Things to Consider for a Chattel Mortgage


Just like any financial decision, it’s always important that you calculate how long you plan to use a vehicle or equipment for your company, its life expectancy and your cash flow expectations. 


You can only get the best possible financing when you are able to negotiate both the costs of equipment or vehicle along with the financial charges. 


Saving on cost with regards to financing business equipment usually comes down to the total repayments and the amount you are going to finance. This isn’t always about the lowest interest rate. It’s crucial that you think about these two things when considering your options moving forward.


You should also watch out for any additional costs like monthly fees that come with setting up the finance. 


Quick Benefits of a Chattel Mortgage


  • You can structure your chattel mortgage repayments to a variety of terms. You can choose anything between 2 to 5 years for repayment.
  • The interest rates here are often lower compared to unsecured loans and you can choose to have it variable or fixed.
  • Your repayments can be locked at the same amount on a monthly basis or you can structure it to fit your cash flow requirements.
  • You get to own the asset you finance immediately. This will show up as an asset on your balance sheet while also showing it as a liability.
  • It’s possible to set a residual or balloon payment by the end of the term so you can lower your monthly payments.


Things to Ask About Your Chattel Mortgage


Prior to agreeing on a chattel mortgage, it’s important that you know all about its details so you can budget accordingly. Doing so also helps ensure that you can make repayments on time and in full.


Here are some questions you should ask your chattel mortgage broker:


  • What will the monthly repayments be?
  • Will there be penalty fees in case of early repayment?
  • What fees and charges are included on the chattel mortgage?


getting a new car with chattel mortgage

Where Can I Get a Chattel Mortgage?


Once you’ve decided that a chattel mortgage is the right option for you, then it’s time to find the lender for your needs. There are numerous brokers in Australia today. You can quickly go online and do a search to reveal numerous options. 


However, it’s important that you go to an expert and reputable lender for help. When you choose a trusted dealer, you get to save a lot of time, money and stress in the long run.


At Yes Loans, we have many years of experience with regards to working with people and companies looking for the loan they need. We can immediately provide you with an assessment and guide you to whether or not a chattel mortgage is the best choice for you right now.


If you are interested in learning more, book a consultation with us and we’ll take care of the rest!