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What is a Chattel Mortgage?

Written by

Shaun McGowan

A chattel mortgage is a type of finance used by sole traders and businesses predominantly for the purchase of a vehicle, often due to the significant financial advantages it offers over a standard car loan. To qualify, the vehicle must be used at least 51% of the time for business.

Chattel mortgages are a fixed-term finance contract with a fixed interest rate, most similar to secured car loans but for business customers. This means the vehicle or vehicles you purchase will still act as security for the loan, but your business can immediately take advantage of the tax benefits of ownership.

If you are approved:

  • A lender will provide the funding needed to purchase the vehicle.
  • You will purchase the vehicle and take full ownership and responsibility.
  • You will make regular repayments to the lender for a fixed period of time.
  • The lender will register a mortgage over the asset.

Chattel mortgages are required to be registered similar to how a lender secures a home loan by registering the mortgage on a property. Under this arrangement, you or your business will own the vehicle and assume full responsibility for it as an asset.

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Chattel Mortgage Benefits

Chattel mortgages in Australia offer greater benefits than many other kinds of business finance, and are suitable for all kinds of businesses wishing to purchase company vehicles or machinery.

In summary:

  • Allows a business to finance a vehicle if it is used for business purposes 51% of the time.
  • Uses the financed vehicle as security.
  • Allows the business to benefit from ownership of the vehicle immediately.
  • May include a balloon payment to lower monthly repayment costs.
  • Is generally set between 2 - 5 years.
  • Chattel mortgage interest rates and fees are generally lower than other forms of vehicle finance.
  • May include early repayment or termination fees.
  • Offers GST, depreciation, and tax-deduction benefits on a vehicle.

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Who is eligible?

  • Own a business and have an ABN
  • Business is GST-registered
  • Permanent Citizenship or Residency
  • Minimum business-operating time of six months
  • Can provide business bank statements

What lenders are looking for

This is how lenders view different assets you want to finance for your business.

Type of asset - Commercial Finance

How lenders view your business history

Here is how your time in business affects your ability to be approved.

Time in business - Commercial Finance

Chattel Mortgage GST

If your business is registered for GST on a cash basis — i.e. it records business income and expenses as and when they occur — it can claim the GST on the initial purchase price of the vehicle as an input tax credit on the first Business Activity Statement (BAS) following the establishment of the chattel mortgage.

If you’re taking out a chattel mortgage:

  • The vehicle becomes an asset on the business’s balance sheet
  • You can claim the initial purchase-price GST back on your next BAS
  • You can claim depreciation on the vehicle in your tax return A balloon payment can help reduce your repayment amounts and maintain business cash flow
  • All interest is tax-deductible

In the case of depreciation, there is a maximum amount for vehicles, which is set each year by the Australian Tax Office.

The cost limit on vehicles was $57,581 for both GST and depreciation during the 2019-2020 tax year. The maximum amount of GST claimable during that year was 1/11th of the cost limit — $5,234.00.

The cost limit on vehicles is $59,136 for the 2020–2021 financial year for both GST and depreciation. The maximum amount of GST claimable is 1/11th of the cost limit — currently $5,376.00.

Chattel Mortgage Vehicle Price versus Claimable GST Table

Chattel mortgage featureVehicle OneVehicle TwoVehicle Three

Purchase price




Claimable GST





Vehicle is below the cost limit, and full GST on the purchase price can be claimed.

Vehicle is above the cost limit, and only $5,234 of GST can be claimed.

Vehicle is above the cost limit, and only $5,234 of GST can be claimed.

You will also be responsible for the vehicle’s operating expenses for the duration of your chattel mortgage term, including:

  • Registration
  • Servicing costs
  • Insurance
  • Replacement tyres
  • Repairs

As the vehicle is a business asset, you could claim a tax deduction for the above operating expenses. If the vehicle is used for both business and private use, however, you will need to assess the percentage that you are claiming as business use.

Self-employed (sole trader) Chattel Mortgage

For sole traders, a chattel mortgage can provide significant benefits not available under most other forms of car finance. As the vehicle is being used largely for business purposes, you may be able to claim some or all of the interest and depreciation costs as tax deductions as well.

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Common Australian Trades for a Chattel Mortgage

Tradies A-ETradies F-LTradies M-Z
  • Arborists
  • Builders
  • Carpenters
  • Caterers
  • Cleaners
  • Couriers
  • Electricians
  • Fencers
  • Glaziers
  • Handymen
  • HVAC technicians
  • Labourers
  • Landscapers
  • Locksmiths
  • Mobile Mechanics
  • Painters
  • Plasterers
  • Plumbers
  • Pool Servicing
  • Removalists
  • Tilers

Most Common Vehicles Purchased With Chattel Mortgage

Small vehiclesLarge vehiclesMachinery
  • Cars
  • Motorcycles
  • Work Vans
  • Work Utes
  • Delivery Vans
  • Trucks and Trailers
  • Caravans
  • Buses
  • Diggers
  • Forklifts
  • Mowers
  • Tractors

Chattel mortgages are commonly used by companies looking to purchase heavy machinery — such as transport truck and trailer combos, delivery trucks, excavation machinery, and other mining equipment.

Vehicle finance brokers operate all across Australia, and can help you compare the best available options for chattel mortgage. They may often charge a small fee for their services, but you can find a broker to help you choose and apply for a chattel mortgage anywhere in Australia — Sydney, Perth, Adelaide, Brisbane, Newcastle, Melbourne, Canberra, or anywhere else in Australia you may be located.

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Deposits and trade-ins

Although you won’t be required to put down a deposit in most cases — and lenders will generally finance 100% of the asset price through a chattel mortgage — you can certainly place down a deposit to lower your monthly repayments if you wish to.

If you have an existing vehicle you will be trading in, you can use the trade value of your old vehicle to purchase the new vehicle, which will also reduce the amount borrowed and, therefore, your monthly payments..

Chattel mortgage balloon payments

Balloon or ‘residual’ amounts are essentially lump-sum repayments due at the end of the loan term. Chattel mortgages can be set up to include a balloon amount, which results in lower scheduled repayments at the cost of a higher final payment.

This is often the case when a business wants to conserve cash flow at the time of taking on the chattel mortgage. Otherwise, the business may choose to pay off the vehicle without a balloon and simply own the vehicle once the loan is repaid.

Car loan balloon payments

Chattel Mortgage Balloon Payment Calculation Table

Loan amountLoan termBalloon amountInterest rateMonthly repayments


5 years





5 years




Important: This is a hypothetical calculation as an illustration of how balloon payments affect monthly repayment amounts and does not represent actual rates or repayments.

Options at the end of the term

At the end of a chattel mortgage, you or your business will need to pay the balloon payment — if there is one — and you will have a few options.

  • Trade the vehicle in and purchase another with a new finance agreement, repaying the balloon amount in the process (generally using the proceeds from the trade-in).
  • Repay the balloon with funds at hand, and retain or sell the vehicle independently.
  • Refinance the balloon amount and retain the vehicle.
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Here are the most popular chattel mortgage questions people are asking:

Yes, provided you can display your ability to repay the loan amount. As a chattel mortgage uses the vehicle you wish to finance as security, lenders are more inclined to offer approval to someone with bad credit than they are an unsecured business loan.

Chattel mortgages are often free of some of the types of fees and charges often associated with consumer loans and other finance agreements — such as account-keeping fees and other charges. Make sure you understand any fees before signing an agreement with a lender.

You can use a chattel mortgage to finance used cars or vehicles for your business. However, be aware that lenders may charge a higher interest rate if you are planning to buy used cars or vehicles, due to the added risk and lower value of the used asset.

There are three main disadvantages of a Chattel Mortgage: All monthly instalments (and the balloon payment) are not tax-deductible, a business is paying interest on a vehicle instead of owning it outright and, for small businesses in particular, there is experienced accounting work required to claim GST

Loan terms for chattel mortgages are often flexible to suit the borrower, though most lenders will offer an agreement between two and five years.

About the Author

Shaun McGowan from



Shaun McGowan

Shaun is the founder of and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded and Lend.