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.
As the asset will be secured, the interest rate you pay on a chattel mortgage will be lower than most other forms of business finance.
Under this arrangement, you or your business will own the vehicle and assume full responsibility for it as an asset. You will also be responsible for the vehicle’s operating expenses for the duration of your chattel mortgage term, including:
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.
Most banks will offer a chattel mortgage for businesses. Otherwise, you could choose to apply with:
Specialist Asset Finance Lenders
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'd like to find out if the tax benefits are more suitable for your business than other forms of equipment finance, you can read our individual guides to compare the benefits of:
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
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. As of March, 2019, the cost limit on vehicles is $57,581 for both GST and depreciation. The maximum amount of GST claimable is 1/11th of the cost limit - currently $5,234.
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.
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.
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.
You can use the Chattel Mortgage Calculator to quickly compare repayments and balloon payment amounts.
Important: This is a hypothetical calculation as an illustration of how balloon
payments affect monthly repayment amounts.
Chattel mortgages typically attract lower interest rates and fees than some alternative
forms of car finance, such as unsecured personal loans. Just like many car finance agreements, the
rate is typically fixed for the term of the loan.
You can read our guide to learn more about chattel mortgage interest rates in Australia.
Loan terms for chattel mortgages are often flexible to suit the borrower, though most
lenders will offer an agreement between two and five years.
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.
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
Refinance the balloon amount and retain the vehicle.
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.
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.
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.
There are three main disadvantages of a Chattel Mortgage: