Chattel Mortgages Explained
Wondering how you can get a car loan for your business? If you still use your car for some personal transport, you can find out here how a chattel mortgage works and why it's an option to consider if you need a vehicle for both personal and business use.
What's a Chattel Mortgage?
A chattel mortgage is a commercial finance product used by businesses when they intend to own the vehicle they will use in their daily operations.
You can get a chattel mortgage if you use the vehicle for business purposes more than 50% of the time. You can choose to put down a deposit to reduce the interest you pay on the loan, or opt to pay a lump sum at the end of the loan term known as a 'balloon payment'.
What are the benefits?
There are some compelling reasons to choose a chattel mortgage for the purchase of your business vehicles. Some of the main benefits include:
1. Tax benefits: GST & depreciation
GST is only charged on the vehicle purchase price, not on your monthly payments, total loan amount including interest, or the final 'balloon' payment.
When you buy a vehicle with a chattel mortgage, you can claim GST from the vehicle purchase price as an Input Tax Credit on your very next BAS statement.
When the car is used for business purposes, you can claim the interest on your chattel mortgage, as well as depreciation on the vehicle.
2. Set repayments
With a chattel mortgage, your repayments are fixed for the term of the loan. This gives you budgeting certainty. To reduce your repayment amount, you can trade-in your current vehicle, or provide a deposit towards the purchase too.
You can also arrange to pay a balloon amount, which is a lump sum payment due at the end of your loan term. This will reduce your regular repayments. If you reach the end of the loan term and you don't have a lump sum to pay the remainder, you have the option to refinance the balloon amount too.
3. Other benefits of a chattel mortgage over a consumer loan
A chattel mortgage usually has a lower interest rate than a consumer loan. This is because a chattel mortgage usually has fewer account keeping fees.
Flexible repayments to match your business cash flow.
If your business has a seasonal cash flow, your chattel mortgage repayments can be structured so that rather than a regular weekly or monthly payment, you'll make a larger payment when your cash comes in.
Remember that before you decide on vehicle finance, you should check with your accountant to ensure you get the loan structure that will work best.
What do you need to look out for?
Some tax issues become quite complex, so seek advice from your accountant or tax specialist to ensure that the tax structure and business car loan that you select are optimised to the way you use the vehicle in your business.
For a chattel mortgage to be an effective finance option for your business, you'll need to make sure the car is used 50% or more for your business transport purposes.
When you purchase a vehicle using a chattel mortgage, you take responsibility for all of the operating costs, such as registration, servicing, and so on. You also take the risk for the resale value of the car at the end of the loan term.
How does it stack up next to a regular car loan?
With a chattel mortgage, you can purchase a range of vehicles and equipment that you use in your business. This includes cars, vans, farm equipment, earthmovers, and whatever else you need to get the job done.
Instead of being assessed on your personal income, like you would for a personal car loan, your loan application will be assessed against your business cash flow.
You may even be able to get a repayment structure that fits in with your seasonal cash flow, rather than a regular weekly or monthly payment. These are just a few of the things to consider when you compare a chattel mortgage to a personal car loan.
Who does it suit?
A chattel mortgage will suit any small or large business that uses their vehicles more than 50% for business purposes.
If your business accounts for GST each year on either a cash or accruals basis, then a chattel mortgage could be an effective way to maximise tax savings. Check with your account before taking out your business car loan to make sure you are positioned to obtain the maximum benefit from your vehicle loan, lease, or chattel mortgage.
Get a fast chattel mortgage and have a loan approval within a business day. Our friendly staff will be able to answer any questions you have and ensure your application process is straightforward.
Not using your car for business more than personal use? A novated lease might be the right loan option.