Chattel Mortgage

Chattel Mortgage is a very commonly used type of commercial finance. It can be used to finance a wide range of business goods and assets including many types of equipment, motor vehicles, trucks, boats and marine vessels. In most cases, depending on individual lender requirements, Chattel Mortgage can be used to purchase new and used items, purchased through a dealer, a private seller, another business or at auction.

This finance types suits many types of businesses that use a cash accounting method. This includes:-

  • Sole Traders
  • Corporations
  • SMEs
  • Partnerships

Key Features of Chattel Mortgage

The title may sound mysterious but the concept is relatively straight forward. Chattel derives from the olde world word for goods. Mortgage refers to the lenders title over the goods or the finance. The lender extends finance (mortgage) to the borrower for the purchase of goods (chattel) and uses the goods as security against the loan.

  • During the loan period, the borrower has full use of the goods and is responsible for all costs and expenses associated with the operation and maintenance of the goods, ie equipment or car.
  • Interest rate is usually at a fixed rate.
  • Loan term is fixed. The length of time may be subject to individual lender requirements and based on the value of the goods.
  • Repayments are fixed for the term of the loan.
  • A balloon is optional. This is a percentage of the purchase price which is deferred for payment in full after all monthly repayments have been finalised.
  • When all payments including the balloon are finalised, the lender releases the mortgage and full title to the borrower.
  • GST is applied to the purchase price of the goods and can be claimed by the borrower in the relevant BAS period.
  • GST does not apply to the monthly repayments or balloon as it has already been claimed on the initial purchase price.
  • GST does not apply to the interest.
  • GST does apply to fees and charges and can be claimed in the BAS period when paid.
  • The full monthly repayment and balloon are not tax deductible, only the interest charges are deductible.

Sourcing a Chattel Mortgage

Depending on the goods being purchased, most banks and finance companies that operate in the business finance sector offer Chattel Mortgage.

A professional finance broker is ideally positioned and qualified to source you a Chattel Mortgage and offers many benefits and advantages over you sourcing your own loan directly with the bank or lenders. To source a number of loan offers in order to compare will be time-consuming for yourself, while a finance broker has access to multiple sources and is better placed to handle this for you.

If you do have specific reasons for wanting your transactional bank to extend your Chattel Mortgage, most finance brokers will handle the negotiations with your bank on your behalf.

We know people who operate in the finance broking area and we welcome your enquiry for further information or contact details to assist you.