What is a Chattel Mortgage?

Using finance is a common way for Australian businesses to cover the costs of vehicles or equipment required for work. Therefore, when your business is in need of a vehicle, one of your first decisions should be how you’ll choose to finance it. This is where a chattel mortgage may be one of the most practical ways for any business to manage their asset finances.

Not to be confused with a mortgage for a chateau, as nice as that would be, a chattel mortgage is a financial agreement with an Australian lender that allows you to purchase a car or movable equipment. You might think this sounds like a secured car loan; however, it’s typically reserved for assets that are purchased primarily for business purposes. You may have also heard it being referred to as a car or equipment loan, commercial hire purchase, personal property security or even movable hypothecation. 

As with all loans, the idea is to lend your business the money you need and then you are required to make set repayments on a weekly, fortnightly or monthly basis for the term of the loan. Keep in mind that your chattel mortgage loan will only cover the finance of the vehicle, and any regular running costs associated with the vehicle, such as servicing and registration, are solely your responsibility. 

During the chattel mortgage loan contract, the lender retains conditional ownership of the vehicle, although you can use the equipment as if it were your own. Once the loan contract is successfully complete, ownership is transferred to you, and you’ll own the vehicle outright. You also won’t be allowed to upgrade or liquidate the asset until you’ve paid off the loan.

With a similar structure to a fixed-rate traditional home loan or mortgage, this commercial finance product allows a lender, like Rapid Loans, to take a ‘mortgage’ over the vehicle or asset as security for the loan. This means that in the unlikely event you default on the loan, the lender can reclaim the vehicle or asset and sell it to recoup the losses outstanding on the loan. This is largely because heavy equipment and machinery tend to have a long-life span and be expensive. The asset is also required to be registered as a security interest on the Personal Property Securities Register (PPSR) for the life of the loan. It’s worth noting that as the asset is the only collateral used, the lender cannot repossess any of your other personal or business assets if you fail to make repayments.

What is a chattel mortgage used for? 

A chattel mortgage is popular among business owners and operators for equipment and movable property as it can be used for farm and earthmoving equipment, bulldozers, forklifts, vans, trucks, tractors and a variety of other types of machinery. For example, if you’re a self-employed tradie needing a ute to complete construction projects and move material between job sites, this type of loan might be ideal for you.

What are the interest rates for a chattel mortgage?

A chattel mortgage will have a higher interest rate than any mortgage rates for property, due to the term of the loan being much shorter. Although, you’ll find that it’ll likely have lower interest rates than an unsecured personal loan.

What are the differences between a chattel mortgage and a secured car loan? 

One of the main differences between standard secured car loans and chattel mortgages is that businesses can claim tax benefits on the loan because the assets used are for business purposes. 

A chattel mortgage could be a good choice for those who are registered for GST on a cash accounting basis, as you might be able to claim GST from the vehicle’s purchase price as an input Tax Credit on your business activity statement. Along with more flexible loan repayment periods, there is also the potential to claim tax deductions on the loan interest charges. This makes chattel mortgages ideal for smaller businesses under the simplified tax system (STS) with less than $10m in turnover.

If you meet the criteria, you may also be eligible to pool your mortgaged assets and claim a depreciation rate set by the Australian Tax Office, which is 15% in the first year and 30% after that. 

However, be sure to speak with your accountant or financial advisor first to understand if there are any tax benefits of a chattel mortgage for your business and financial situation. 

You could potentially qualify for a chattel mortgage with Rapid Loans if you have a good credit history and high income. With all loans for business purposes, Rapid Loans will assess your credit rating, capacity to repay the loan, capital, the asset used to secure the debt and other relevant conditions such as the health of your business and what you’ll use the funds for. 

Whether you’d like to kickstart your new business or simply upgrade used equipment, get in touch with a dedicated Rapid Loans consultant on 1300 727 431 to find out how we could help you today.