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Why use a chattel mortgage for a business car?

Written by

Shaun McGowan

A chattel mortgage is used by businesses and sole traders to finance a car. The main condition is that you must use the car for business purposes at least 51% of the time.

There are financial advantages to using a chattel mortgage instead of a car loan:

  • You will gain immediate ownership of the car
  • You can be eligible for certain GST benefits
  • Balloon amounts allow you further save money on repayments

If you’re considering financing a car with a chattel mortgage, here’s all the important information you’ll need to know beforehand.

How does a chattel mortgage car loan work?

Chattel mortgage car loans work in a similar way to other types of vehicle finance but are always secured by the vehicle and only used by businesses.

They are a fixed-term, fixed-rate finance contract in a similar manner to secured car loans but used for business purposes.

A lender will approve funding for financing a business vehicle or machinery and:

  • The business will purchase the car and gain immediate, full ownership
  • The business will make regular repayments to the lender throughout the term
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Chattel Mortgage Benefits: GST

Using a chattel mortgage, a business can claim the GST on the initial purchase price of the vehicle as an input tax credit on its next Business Activity Statement (BAS). There is a limit to how much GST you can claim on a vehicle, which is set each year by the Australian Tax Office.

  • The maximum amount of GST you can currently claim on a vehicle is $5,234.
  • The business must be registered for GST and operate on a cash basis
  • The GST of the car’s initial purchase price can claimed back on the next BAS

A business can also claim depreciation on the vehicle in its end-of-year tax return, and all interest paid is also tax-deductible. To ensure your business qualifies to make these deductions, you will need to first confirm your eligibility with your business account or financial advisor.

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Chattel Mortgage Benefits: Balloon Payments

Balloon or ‘residual’ amounts are lump-sum payments at the end of the loan term. They are often used in chattel mortgage car loans to reduce the regular repayments throughout the term of the loan:

  • Allocating a large amount of your loan into a single, final payment means all of your regular payments will be drastically reduced.
  • A balloon payment can reduce your monthly repayments and free up your budget to live a little.
  • A balloon payment can also be a useful option if you plan to regularly upgrade your vehicle.
Car loan balloon payments

At the end of the term, you will have a few options available depending on whether you wish to purchase the vehicle outright or continue with another chattel mortgage finance agreement.

  • Refinance the balloon amount as a standard car loan and use the vehicle for personal use 100% of the time.
  • Trade the vehicle in and purchase another with a new finance agreement, and use the proceeds from the trade-in to repay the outstanding residual amount in the process.
  • Pay the residual amount and retain full ownership for continued use, or to sell the vehicle for a profit.


Chattel mortgage car finance is commonly used by businesses in Australia, tradies, and workers who are self-employed. They are secured loans which use the purchased vehicle as security on the loan amount.

Chattel mortgage car loans offer significant GST savings and tax benefits in the right circumstances and, by effectively using balloon payments, can be one of the most cost-effective ways to purchase a car that can be used for both business and personal reasons.

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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.