How does a chattel mortgage work?
Let’s focus on a business owner who wants to buy a vehicle. Once the vehicle is chosen and the business owner successfully applies for a business vehicle loan (chattel mortgage), the lender gives the business owner the money to buy it.
Just like a home is security for a home loan, the vehicle becomes security for the vehicle loan.
Like any other loan, the lender charges interest on the amount borrowed, and the borrower pays back the loan with regular repayments.
What are the benefits of a chattel mortgage?
One of the big benefits for business owners when taking out a chattel mortgage is that they don’t need to dip into the business’s savings to get the vehicle they need. Those funds can be used to achieve other goals or kept for a rainy day.
But the benefits of a chattel mortgage keep coming…
1. Flexibility for your business
Chattel mortgages offer flexible loan terms, typically ranging from one to seven years. This flexibility lets you align your term and repayments with the useful life of the vehicle or equipment, so you’re not paying off the loan long after the asset has outlived its usefulness.
Speaking of flexibility, you might consider a balloon payment. A balloon payment is a lump sum paid at the end of the loan term. It keeps your regular repayment amount lower, in turn helping to ease cash flow pressure.
The only thing that isn’t flexible (which is really a good thing) is the interest rate. A fixed interest rate means fixed repayments, giving you a predictable, unchanging expense that you can easily account for in your cash flow.
2. Own it upfront
Another advantage of a chattel mortgage is that you own the asset outright from the very beginning.
Unlike a hire purchase or finance lease where ownership is only transferred at the end of the term, a chattel mortgage gives you ownership from day one.
Again, let’s use the example of someone looking to buy a car for business purposes.
The lender uses the car as security (which means they can offer a lower interest rate), but the car is owned by the business owner. The business owner gets the benefits of any tax deductions they may be eligible for from the purchase.
On the topic of tax deductions…
3. Claim tax deductions
Chattel mortgages give you the opportunity to take advantage of certain tax benefits. You could claim tax deductions on motor vehicle expenses, including the loan’s interest and depreciation of the vehicle’s value.
For sole traders or partnerships, motor vehicle expenses for business use could also be claimed.
It’s worth visiting the Australian Taxation Office (ATO) website and talking with your accountant for independent tax advice about what you’re eligible to claim.
What a lovely chattel you have
The Business+ Vehicle Loan from Great Southern Bank lets you to buy new or second-hand vehicles for your business, from passenger to light commercial vehicles. Here’s why this business vehicle finance option is worth considering:
- Its interest rate is competitive and fixed for the life of the loan so you can budget with certainty.
- No upfront deposit or extra security is needed.
- An optional balloon payment helps reduce your repayments and the burden on your cash flow.
- You can apply online in just 20 minutes.
Oh, and there’s no paperwork to print and return, it’s all done digitally so you can get your vehicle sooner.
A chattel mortgage’s flexibility, cash flow benefits, and tax advantages make it a preferred choice for many small business owners. Now you’re an expert in chattel mortgages, the hardest part is finding the vehicle.
Remember to check out our Business Hub. You’ll find heaps of free resources and plenty of helpful information to keep your business humming.
