Chattel Mortgage

What is a chattel mortgage?

A chattel mortgage is a business loan product that’s typically used for financing an asset, such as a vehicle or equipment. With a chattel mortgage, a lender provides your business with cash in the form of a loan to purchase the asset, which is then used as collateral for the life of the loan. For example, if you take out a chattel mortgage to purchase a forklift, then your lender will use the forklift as collateral for the loan.

One of benefits of a chattel mortgage is that the loan gives you ownership of the asset, allowing you to potentially pay off the loan with income that the asset helps you generate in your business. However, if you’re unable to make repayments, or you default on your loan, the lender may be able to recoup their loss by repossessing the asset used as collateral.

How do I apply for one?

At iSelect we’ve partnered with Valiant to make it easy for our customers to easily compare chattel mortgage. Click here to begin your chattel mortgage application with the friendly team at Valiant.

What kind of assets can be financed with a chattel mortgage?

Chattel mortgages are usually taken out to purchase assets and equipment that are used for business purposes. This includes business vehicles like cars, vans, trucks, and tractors, as well as machinery and other equipment or technology.

What are the benefits of a chattel mortgage?

Some of the benefits include:

• Interest rates: Because the loan is secured with an asset, lender’s view chattel mortgages to be lower risk. Because of this, they often come with a lower interest rate than an unsecured loan.
• Higher loan values & longer terms: Chattel mortgages tend to come with higher maximum loan values, as well as longer terms in which you’re required to pay back the loan.
• Potential tax benefits: Because you own the asset, you may be able to claim interest and depreciations costs depending on the percentage of business use. However, it’s best to speak to a tax professional for advice in this area.
• Less documentation: Because the asset is used as loan collateral, the lender is unlikely to require a review of your credit or financial history.
• Not affected by existing debts: Because the loan is completely secured by an asset, if you have existing debts, you may still get approved for a chattel mortgage.
• Less personal liability: Because the purchased asset is used as collateral, the lender cannot repossess any of your other personal or business assets if you fail to make repayments or default.

What are the disadvantages?

• Asset repossession: If you can’t make repayments, or you default on the loan, the lender can repossess the asset to recoup their loss.
• Less flexibility: You can’t upgrade or liquidate the asset until you’ve paid off the loan.
• Asset costs: On top of loan repayments, you’re responsible for the costs of running and maintaining the asset (such as new tires and fuel for a work car).

What are some factors to consider when comparing chattel mortgages?

One of the best things you can do is negotiate a competitive price on the asset or equipment you’re purchasing. Securing a good deal with the seller will lower the size of the loan value you need to take out, which could in turn reduce the overall repayments you need to make.

Additionally, here are a range of other factors to consider when comparing chattel mortgages:

• Interest rates: These can differ between lenders, and the rate of the loan you choose can have a significant impact on your total repayments.
• Loan term: Whether you’re required to pay the loan off in 2 years or 5 can have an impact on your business’ cash flows. It’s a good idea to look for a loan term that isn’t going to create undue financial stress to pay off.
• Fixed or variable interest: Looking for the security of knowing exactly what you repayments will be? Then a fixed interest rate could suit you. However, with a variable rate loan, you could experience lower interest repayments if the lenders interest rates drop. That said, it could also swing the other way, with your repayments increasing if interest rates rise. Both options have pros and cons, so it’s important to weigh up what’s suitable for you.
• Fees: Lenders can each have different fees associated with the setup and ongoing maintenance of your loan, so it’s important to understand what these are upfront.
• Redraw facility: Some loans can come with a redraw facility, allowing you to withdraw any money from any payments you made on top of your regular loan payments. Maintaining a redraw facility can also lower your total repayments over the loan term, so this feature can be a beneficial one to have included.
• Speed of processing: Discovered a good deal and need your chattel mortgage fast? Some lenders can process your loan in as little as 24 hours, getting you the funds you need, when you need them. This turnaround time can differ between lenders and loan products.

Looking for a chattel mortgage? Compare from Valiant’s range of products and providers

At iSelect we’ve partnered with Valiant to help iSelect customers compare business loans on offer from their range of lenders. Valiant compare a range of products from over 80 lenders across Australia, and can manage the process of finding and applying for your finance solution, as well as settling funds. Get started comparing online today!

The information in this content is general in nature and should not be considered tax advice. You should always seek professional tax advice or assistance before acting or relying on any content.

Last updated: 28/01/2021