Chattel Mortgage for Tradies and Individual Business Owners
If you are a tradie or a business owner who needs a vehicle for business purposes but don’t have the funds ready, you finance your car purchase with a chattel mortgage car loan.
A chattel mortgage is a type of secured car loan for ABN holders where the lender keeps the vehicle as collateral for the loan. While you can use the car immediately after purchase, the lender holds a lien on it until the entire amount is repaid in full.
Chattel Mortgage Vs Consumer Car Loan
Although a chattel mortgage car loan has a similar structure to a consumer car loan, it has several differences:
- Business or Personal. Unlike a consumer car loan that is intended for personal use, a chattel mortgage is designed especially for individuals who plan to use the vehicle mainly for business purposes (at least 50%), like tradies and small business owners who need a vehicle to transport equipment or goods.
- Secured or Unsecured. A consumer car loan can be unsecured or secured against the vehicle or other personal property. On the other hand, the car is always the security in a chattel car loan.
A chattel mortgage offers many benefits for sole traders, including:
Lower Interest Rate
Compared to a standard consumer car loan, a chattel mortgage usually comes with a lower interest rate. This is because the car that you are going to purchase will be used as collateral for the loan.
An unsecured consumer car loan typically has a higher interest rate because it is not backed by the vehicle or any other assets that the lender can repossess if you default on the loan. The higher interest rate compensates for that risk.
Flexible Loan Structure
Chattel mortgage offers flexible loan terms to suit your individual needs as a business owner. You can set its term from 1 to 7 years or even longer and structure it like a standard car loan where you make uniform monthly repayments until the loan is paid off. If you need to secure cash flow, you can also get 100% financing on your car purchase, and amortise other related expenses like insurance in the loan, so you won’t have to pay on anything.
Down Payment or Balloon Payment
If you want to make your monthly repayments lower, you can put a down payment to secure the loan. Alternatively, you can have it structured with a balloon payment, which allows you to pay the principal balance at the end of your contract. This will help you grow your business cash flow while saving money for the balloon payment.
Car Refinance or Trade-In
If you want to get a new vehicle after two or three years, you also have the option of refinancing your car loan or trade your old car for a new one. The lender will typically roll any excess you owe on the loan into your next car loan.
A chattel mortgage is considered as a business use loan product, which helps maximise your taxation benefits. You can instantly claim the GST contained in the vehicle price as an input credit on your next Business Activity Statement (BAS). If the purchase price of your vehicle is more than the car limit, the maximum amount of GST credit you can claim is one-eleventh of the car limit amount.
Interest charges on the loan can also be claimed as deductions.
You can also claim depreciation up to the depreciation limit of $57,581 for the financial year 2018-2019.
Not Strictly Regulated
A chattel mortgage is not regulated by the National Consumer Credit Protection Act (NCCP Act), which prohibits loan approvals to people who are less likely to repay a loan.
If you have a low credit score, you can still get approved for a chattel mortgage by lenders who do not conduct strict credit checks. However, you are also vulnerable to predatory lending, which allows you to secure a car loan in exchange for a higher interest rate and unfavourable loan terms. Such setup is likely to result in loan default and car repossession.
Thus, it is wise to consult a financial professional to learn more about chattel mortgages and get a clear and concise understanding of the loan terms, fees or charges.
Get approved for a chattel mortgage car loan or other types of car financing at Positive Lending Solutions. Our car loan experts can find the right car financing with the best rate and terms for you. Request a Quick Quote or call us on 1300 722 210.