You’ve returned home from a vibrant office party where the boss was showing off the new company car. It was a great evening but as you’re relaxing on the couch, a confusing term lingers in your mind… “chattel mortgage”.
You’ve heard the term before but the true meaning of it has always eluded you. Typing the term into your phone or computer - you’re eager to find out exactly what it means before the next office party.
So, what is chattel mortgage and how does it work?
The word ‘chattel’ adds confusion to the minds of many people, but it’s a much simpler term than it sounds.
‘Chattel’ just means the things you own. But in this context, chattel refers to moveable goods like your business car, equipment, or anything else you can take with you if you move. So when discussing ‘chattel mortgage’, people are referring to a loan where you use your moveable goods as collateral.
With chattel mortgage, the lender will provide the upfront funds for your business to purchase the moveable goods it requires. A repayment period and schedule will be agreed upon and when the asset is paid off, your company will own the goods outright. However, with a chattel mortgage, If you are unable to pay back the lender, they can take the goods away.
Why should I choose a chattel mortgage?
Many finance brokers consider a chattel mortgage to be the top financing option for a business as it is often the only way a business can acquire an asset and use it straight away. Although there are many motivations to choose a chattel mortgage for your next business loan, here are 5 compelling reasons why.
1. No Down Payment
One of the key benefits of chattel mortgages is that many lenders will not require a downpayment on assets bought through the loan. Lenders will typically finance 100% of the asset price, including GST. However, a business may choose to voluntarily pay a deposit to lower their loan amount and monthly repayments.
2. Lower Interest Rates
Chattel mortgages can also often save you money. This is because the interest rates on chattel mortgages are usually lower than unsecured loans, and you can choose between a fixed or variable interest rate. With a fixed interest rate, the rate will stay the same throughout the loan and your repayments will stay the same. With a variable interest rate, your repayments could go up or down in accordance with interest rates.
Unsecured Loan: Does not require you to provide any collateral. The lender relies solely on your creditworthiness and promise to repay. Student loans, credit cards, and personal loans are unsecured loans.
Secured Loan: Requires you to provide collateral to the lender which can include your home, car, or any other valuable asset. A chattel mortgage is a secured loan.
3. Flexibility
One of the top reasons chattel mortgage is a popular choice for purchasing commercial vehicles or equipment is because business owners are able to dictate whether they want to pay more or less each month depending on their financial situation. There is also an option to make a balloon payment at the end of the loan which is a lump sum payment which acts to decrease a business’s monthly payments over the repayment period.
4. Tax Deductions
If you are running a business and need to purchase a vehicle or equipment, by choosing chattel mortgage you can potentially save money on taxes. This is because the GST-inclusive purchase price of the asset is financed and you can claim an input tax credit up-front. Another benefit is that your business may be able to claim back GST for the interest paid and the depreciation value of the vehicle at the end of the tax year depending on how often you use the asset for business purposes.
5. Security
Chattel mortgages provide some security to businesses. This is because although the company does not own the asset outright yet, companies can make use of the vehicle for business purposes immediately. With no down payment required, companies don’t need to tie up a large chunk of their capital and can instead set up their monthly repayments against other business expenses. This is extremely beneficial if the company is intending to lease the vehicle they have taken ownership of because they could make a profit on the purchase price. Simply put, a chattel mortgage provides security to businesses looking to purchase a vehicle for business use because it allows them to keep their cash flow stable.
Conclusion
In summary, the majority of commercial finance brokers consider chattel mortgage to be the top financing option for a business. Although there are many motivations to choose a chattel mortgage for your next business loan, the five reasons outlined in this guide should help you understand why.
Want to finance your next business loan via chattel mortgage?
JADE Finance Australia is the only place you need to look. As chattel mortgage is an extremely popular financing product, most banks and finance companies offer it. However, at JADE, our experienced brokers are not limited to one offer by one source. We have a large portfolio of lenders who we will compare and assess to find the best deal for you and your business. Save yourself time and paperwork by calling JADE Finance.
For further financing information or to request a quote, contact us today.
