Car Chattel Mortgage Rates - Compare Business Car Loan

Chattel Mortgage as a type of finance suits all businesses that use the cash accounting method. Depending on the business structure that may include SMEs, sole traders, sole traders, partnerships, family enterprises, medium operations and large corporations.

It is the most widely used type of business vehicle finance which is testament to its versatility to suit many business structures. The simple format suits businesses that choose to own their vehicles and have them listed on their balance sheet.

Some businesses, especially start-ups, may not wish to have the value of a vehicle posted on their balance sheet as an asset/liability. So to improve the appearance of their balance sheet they may choose leasing rather than Chattel Mortgage.

There are two main types of accounting methods used by businesses – cash and accruals methods. The cash method is the most widely used by Australian businesses as it suits many business sizes and structures. It is quite simple to follow – the business accounts are kept based on the money received and the money paid out when transactions occur. That means, you may wait 30 days for a customer to pay you, but you do not record the income until the time the money is received. Same with your expenses. You may wait 30 days to pay a bill, but you do not record it in your outgoings until you actually pay it.

The business accounts and income tax return are prepared based on whatever method selected by the business. Once selected, that accounting method must be maintained for that financial year. Chattel Mortgage is best suited to businesses that use the cash accounting method.

This method is differentiated from accruals accounting as accruals records income and expenses at the time the invoice is issued to a customer or a bill received, regardless of whether or not payment has been paid.

GST applies to the purchase price of motor vehicles at the current rate of 10%. GST is usually included in the advertised price of a vehicle but additional charges may apply in regard to delivery charges etc. Registration does not attract GST. So when you receive the invoice from the atuomotive seller, the amount of GST payable on the purchase should be noted. Please note a private sale sold vehicle may not have GST.

The total invoice amount, including the GST, can be included in your total loan amount. GST is not charged on loan interest. As your business is taking ownership of the vehicle under a Chattel Mortgage, your business is liable to pay and claim the GST if you are registered for GST. This contrasts with Leasing where the vehicle is technically acquired by the lender and hence they claim the GST.

Under a Chattel Mortgage finance deal, the buyer can actually claim all the GST payable straight away – on the next BAS return. As the full amount of GST has already been claimed and because the lender is not actually charging you when you make repayments, GST does not apply to monthly repayments. So you pay and claim the GST essentially at time of purchase.

Please note the amount total you may claim is subject to luxury car tax thresholds.

A tax benefits is realised through a Chattel Mortgage but not via tax deduction on repayments. Only the interest portion of the monthly repayment is tax deductible. The taxation benefit is realised through the depreciation allowance associated with Chattel Mortgage.

With a Chattel Mortgage, the borrower takes ownership of the vehicle so the vehicle is listed as an asset/liability in the business accounts. At the end of financial year, when preparing the annual accounts and income tax return, the vehicle can be depreciated at the percentage set out by the ATO. This depreciation amount is a tax deduction. The vehicle is depreciated each year in accordance with the ATO depreciation schedule until the full value is exhausted.

The depreciation is only on the actual purchase price of the vehicle not the full loan amount which is why the interest portion of the monthly repayments and balloon is tax deductible as an expense.

Please note claims are subject to luxury car tax thresold set by the ATO

Chattel Mortgage has the option for what is referred to as a balloon. This is a percentage of the purchase price of the loan, not the entire loan amount, which is deferred for payment at the end of the finance term or interest only charged amount of finance. By deferred, it means it is not included when calculating the monthly repayments. Being due as a somewhat large amount in lump sum, it is considered a balloon.

Buyers in consultation with their Jade consultant and lender can decide on a balloon that suits their financial objectives. A larger balloon will reduce the monthly repayments while a smaller balloon will increase the payments so the loan can be finalised faster.

A balloon helps businesses to purchase more expenses vehicles at affordable repayments. However, it is advisable to keep in mind the projected value of the vehicle at the end of the loan term to ensure the balloon does not exceed that value. In that instance, you would owe more than what the vehicle is worth.

A balloon can be paid in full at the end of the loan term or refinanced with a new loan deal. Subject to lender approval and criteria.

As with our explanation of chattel, the use of the term mortgage in relation to business vehicle finance can be confusing. Most people associate mortgages with home loans and that tends to be the primary use of the term in Australian finance. In regard to Chattel Mortgage as a type of vehicle finance, the mortgage is the debt instrument or specifically the loan taken out to buy the car.

The mortgage is taken, or provided by the lender, for the chattel, being the vehicle. So in simple terms, this may translate as – auto loan. The mortgage is simply another term for loan. Terms such as mortgage are often maintained for use in legal documents and contracts. The legal fraternity and parts of the finance industry still tend to use historic terminology in official contracts.

A chattel is an old world term which was used going back centuries to describe goods. It is still used today in legal documents and financial business contracts though some banks tend to be replacing Chattel Mortgage with the more simplistic Business Car Loan or Equipment Loan. In common law and according to definition, a chattel is property other than freehold land. That is tangible moveable goods and other belongings.

In financing, the chattel is the item or asset being acquired by the business. In regard to motor vehicle finance the chattel is the automobile or business vehicle that you are buying.