Chattel Mortgage in Australia: A Guide by a Finance Broker
Purchasing a vehicle for business use requires careful financial planning, and one of the most effective financing options available to Australian businesses is a chattel mortgage. As a finance broker, I help clients understand the benefits and considerations of this loan structure to ensure they make informed decisions. Here, we explore how chattel mortgages work, their advantages, and key factors to consider.
What is a Chattel Mortgage?
A chattel mortgage is a type of loan specifically designed for business vehicle financing. The business owner takes out a loan to purchase a vehicle, and the lender registers a mortgage over the vehicle as security for the loan. Once the loan is repaid, the mortgage is removed, and the business retains full ownership.
How Does a Chattel Mortgage Work?
- The business purchases a vehicle using a chattel mortgage agreement.
- The lender provides financing, and the vehicle acts as collateral.
- The business makes regular loan repayments until the loan is fully paid off.
- At the end of the term, ownership remains with the business, free of any encumbrances.
Benefits of a Chattel Mortgage
1. Tax Benefits
- Businesses can claim GST on the vehicle purchase if they are registered for GST.
- Interest paid on the loan is tax-deductible.
- Depreciation and running costs can also be claimed as business expenses.
2. Full Ownership of the Vehicle
- The business owns the vehicle from day one, unlike lease agreements where ownership remains with the financier.
- No restrictions on vehicle usage or modifications.
3. Flexible Loan Terms
- Loan terms typically range from 1 to 5 years, providing flexibility in repayment structures.
- Balloon payment options available, allowing businesses to lower monthly repayments and make a lump sum payment at the end of the term.
4. Competitive Interest Rates
- Since the vehicle serves as security, chattel mortgages often have lower interest rates compared to unsecured business loans.
Considerations Before Choosing a Chattel Mortgage
1. Business Eligibility
- Only available to businesses or individuals purchasing a vehicle predominantly for business use.
- Private vehicle purchases do not qualify.
2. Balloon Payments
- While balloon payments reduce monthly repayments, a large lump sum is due at the end of the loan term.
- Businesses should ensure they have a financial strategy in place to manage this final payment.
3. GST and Tax Implications
- Businesses need to be registered for GST to claim the full GST credit on the vehicle purchase.
- Consult with an accountant to maximise tax benefits and ensure compliance with ATO regulations.
Who is a Chattel Mortgage Best For?
- Businesses and sole traders looking to purchase a vehicle for business use.
- Companies wanting full ownership of the vehicle from the outset.
- Business owners seeking tax benefits and flexible repayment options.
Final Thoughts
A chattel mortgage is a powerful financing tool for businesses looking to acquire a vehicle while maximising tax benefits and maintaining ownership. However, it’s essential to carefully assess financial commitments, balloon payments, and GST implications before proceeding.
Consulting with a finance broker can help businesses navigate the options available and secure the best chattel mortgage structure tailored to their needs.
If you’re considering a chattel mortgage for your business vehicle, reach out to a finance broker to discuss your options and create a financing plan that aligns with your business goals.
Disclaimer: The information provided in this article is general in nature and does not constitute financial advice. Always consult with a qualified finance professional before making financial decisions.
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