What Is A Chattel Mortgage?

Benefits & How To Apply

  • A chattel mortgage is a business loan that uses the asset being purchased as security (collateral).
  • We explain how it works, the potential tax benefits and how to apply.
Chattel Mortgages with Money Matchmaker
Chattel Mortgages with Money Matchmaker

In our chattel mortgage guide:

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What is a chattel mortgage?

A chattel mortgage is a type of secured business finance commonly used to buy vehicles or other business equipment. With a chattel mortgage, the asset being purchased (known as the ‘chattel’) is registered as security for the loan (mortgage).

This means the lender can reclaim the asset if you default on the loan. The lender must also register their interest in the vehicle or asset on the Personal Property Securities Register (PPSR) until you pay off the loan.

Sole traders and small businesses often use a chattel mortgage to finance vehicles required for work, often due to the tax deductions they offer over a standard car loan. A chattel mortgage can also be known as a goods loan, business car loan or commercial car loan.

How does a chattel mortgage work?

A chattel mortgage works similarly to secured car loan, but for business customers. To qualify, the vehicle must be used at least 51% of the time for business.

With a chattel mortgage, you borrow a lump sum from a lender to buy a vehicle, and repay the loan in instalments with interest over a fixed term. Your business has full ownership of the asset from the outset and is responsible for all upkeep and management costs.

Benefits of a chattel mortgage

  • Borrow anywhere from $10,000 to $1,000,000+

  • Loan terms from 1-7 years

  • Fixed interest rates from 7.50% p.a. (for prime business borrowers)

  • Lower interest rates than unsecured business loans

  • Finance for new or used vehicles & business equipment

  • Homeowners can get lower interest rates

  • Option to include a balloon payment to lower monthly repayments

  • Finance costs may be tax deductible

  • The vehicle or asset is financed under your business ABN which means the business owns it

  • Depending on the loan, you may have the flexibility to repay your chattel mortgage early if you can afford extra repayments

Disadvantages of a chattel mortgage

  • The lender could reclaim the asset if you default on the loan, potentially impacting your business credit rating and operations
  • Opting for a balloon payment at the end of the finance term means you pay more interest overall
  • If you don't have a lump sum to pay your balloon payment, you might need to refinance the balloon amount into a new loan (and pay more interest)
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According to Money.com.au's borrower data, the average chattel mortgage amount requested for vehicles is $58,706 and $181,434 for machinery or equipment.

Assets can you finance with a chattel mortgage

You can generally get a chattel mortgage for business vehicles up to 4.5-5 tonnes (depending on the lender) and any business assets with a serial number. Here’s a breakdown of the different asset classes or ‘tiers’ you can purchase with a chattel mortgage.

Light vehicles (Tier 1)

  • Sedans
  • SUVs
  • Work vans
  • Work utes
  • Motorcycles

Heavy vehicles (Tier 2)

  • Trucks
  • Buses
  • Specialised vehicles (e.g. refrigerated vans, food trucks)
  • Trailers
  • Yellow goods (e.g. excavators, diggers)
  • Farming & agriculture (e.g. tractors, harvesters)

Business machinery or equipment (Tier 3)

  • Warehousing equipment (e.g. forklifts, conveyors)
  • Manufacturing equipment
  • Landscaping equipment
  • Office & IT equipment

Specialised equipment (Tier 4)

  • Commercial kitchen equipment (including appliances)
  • Gym equipment
  • Security systems
  • ATMs
  • Vending machines

Who’s eligible for a chattel mortgage?

Eligibility requirements for a chattel mortgage will vary between lenders, but generally include:

  • Australian citizenship or permanent residency
  • An active ABN or ACN
  • At least six to 12 months of trading history
  • Your business must be GST-registered
  • You must be able to provide bank statements and other proof of eligibility
  • A good credit score — the minimum credit score for business lending is around 475 (it could be less if you own a home)
  • You must be purchasing an asset that’s eligible to act as security under a chattel mortgage (age limits and other criteria may apply)

Chattel mortgage GST & tax benefits

The interest charged on a chattel loan may be tax-deductible as a business expense. If your business is registered for GST, you may additionally be able to claim a credit for the GST paid on the initial purchase of your business vehicle/asset. This can be claimed as what’s called an input tax credit on your Business Activity Statement (BAS) for the relevant period, according to the ATO.

If you’re buying a vehicle, the GST credit you can claim is capped at 1/11th of the car limit for depreciation set by the ATO each year.

  • For 2023-24, the car limit for depreciation is $68,108.
  • The maximum amount of GST you can claim during that year is 1/11th of that cost limit — $6,191.

If the vehicle is used for both business and private use, you will need to calculate the breakdown of each for tax purposes, as only the business use portion will be eligible for a deduction or GST tax credit.

Example of claimable GST on a chattel mortgage

This table shows the difference in claimable GST credits for vehicles with a purchase price below and above the ATO’s car limit for depreciation.

Vehicle 1Vehicle 2

Purchase price

$50,000

$100,000

Claimable GST credit

$4,545

$6,191

Explanation

Vehicle is below the car limit for depreciation & full GST on the purchase price can be claimed

Vehicle is above the car limit for depreciation & only 1/11th of that limit can be claimed

Please note: This is general information only based on the ATO’s guidelines. Seek advice from a qualified tax professional to understand how a chattel mortgage may impact your tax situation.

How to apply for a chattel mortgage

1

Compare chattel mortgage lenders & interest rates

‘Shop the rates’ between bank and non-bank lenders through a finance broker. They will be able to show you indicative chattel mortgage rates and fees, plus features from different lenders. Comparing options in this way shouldn’t impact your credit report. Keep in mind that your individual rate usually ends up being different to the lender’s advertised rate.

2

Prepare your documentation

Lenders will ask for financial documents to verify your business generates enough revenue to repay the loan. Gather your bank statements from the last six to 12 months, and your business registration and tax information (e.g. BAS statements, tax returns). This can be the difference between getting approved on the same day or in a few days. If you’re a relatively new small business borrowing more than $150,000 or an established business with multiple business accounts, the lender may require financials prepared by an accountant.

3

Submit your chattel mortgage application

Most lenders have an online application portal you can submit your chattel mortgage application through. You’ll be asked to submit your financial paperwork at this stage, along with any other relevant business information. The lender will also run a business credit check before processing your application to the final stage.

4

Get your chattel mortgage approved

If you’re still shopping for your business vehicle or asset, the lender may grant you conditional approval until you find your match. If you’ve already found your vehicle or equipment, the lender will check it meets the lending requirements. If it does, your chattel mortgage will be unconditional, and the lender will release the funds into the seller’s bank account.

What documents do you need for a chattel mortgage application?

There are different documentation requirements when applying for a chattel mortgage, depending on the size of your business and trading history. The requirements also vary between lenders but here’s a general guide.

Minimum trading history

Established business

More than 5 years

Business with low documentation

More than 2 years

New business/startup

Less than 2 years

Sole trader

Up to 2 years

Financial documents required

Established business

Two years of financials + 3 months of bank statements

Business with low documentation

Latest BAS statements + 3 months of bank statements

New business/startup

12 months of cash flow projections (prepared by an accountant) + 3 months of bank statements

Sole trader

2 payslips + 3 months of bank statements

Specific requirements

Established business

Financials must be prepared by an accountant

Business with low documentation

Must be a homeowner or have a 10% deposit

New business/startup

Must be a homeowner or have a 10% deposit

Sole trader

Payslips may show ability to repay the loan

Established businessBusiness with low documentationNew business/startupSole trader

Minimum trading history

More than 5 years

More than 2 years

Less than 2 years

Up to 2 years

Financial documents required

Two years of financials + 3 months of bank statements

Latest BAS statements + 3 months of bank statements

12 months of cash flow projections (prepared by an accountant) + 3 months of bank statements

2 payslips + 3 months of bank statements

Specific requirements

Financials must be prepared by an accountant

Must be a homeowner or have a 10% deposit

Must be a homeowner or have a 10% deposit

Payslips may show ability to repay the loan

What factors could help get your chattel mortgage approved?

Shaun McGowan

“Generally speaking, business owners who own residential property and have a healthy trading history are in the strongest position when applying for a chattel mortgage. You may just need to provide a rates notice along with your business financials. Small businesses with a limited trading history can still qualify for a chattel mortgage, but may be asked to provide additional security like a deposit.”

Shaun McGowan, Money.com.au founder and loans expert

Should you get a chattel mortgage with a balloon payment?

Depending on the lender, you may have the option to include a balloon payment as part of your chattel mortgage. This is a lump-sum residual repayment due at the end of your loan term to pay the remaining loan balance. The balloon payment can range from 20-40% of your loan amount depending on how your finance is structured.

Opting for a balloon payment option reduces your regular repayments which can help preserve cash flow, although you’ll owe a larger sum at the end of the loan term. A balloon payment usually means overall interest costs on a chattel mortgage will be higher.

Chattel mortgage with & without balloon payment example calculation

Here’s an example cost comparison between a chattel mortgage with and without a balloon payment at the end of the loan term. Based on the average loan amount requested by borrowers for a chattel mortgage through Money.com.au

Loan amount

Chattel mortgage with balloon payment

$80,000

Chattel mortgage without balloon payment

$80,000

Loan term

Chattel mortgage with balloon payment

5 years

Chattel mortgage without balloon payment

5 years

Interest rate

Chattel mortgage with balloon payment

8%

Chattel mortgage without balloon payment

8%

Balloon payment

Chattel mortgage with balloon payment

$16,000 (20% of loan amount)

Chattel mortgage without balloon payment

$0

Monthly repayment

Chattel mortgage with balloon payment

$1,404

Chattel mortgage without balloon payment

$1,622

Total interest payable

Chattel mortgage with balloon payment

$20,261

Chattel mortgage without balloon payment

$17,327

Total to be repaid

Chattel mortgage with balloon payment

$100,261

Chattel mortgage without balloon payment

$97,327

Cost difference

Chattel mortgage with balloon payment

+$2,934

Chattel mortgage without balloon payment
Chattel mortgage with balloon paymentChattel mortgage without balloon payment

Loan amount

$80,000

$80,000

Loan term

5 years

5 years

Interest rate

8%

8%

Balloon payment

$16,000 (20% of loan amount)

$0

Monthly repayment

$1,404

$1,622

Total interest payable

$20,261

$17,327

Total to be repaid

$100,261

$97,327

Cost difference

+$2,934

Please note: These are example amounts and rates, and are not based on actual loan products. The calculation assumes the interest rate remains the same for the duration of the loan term. Calculation does not factor in loan fees which may apply.

What happens at the end of a chattel mortgage?

After repaying your chattel mortgage, you’ll have unconditional ownership of the vehicle and the asset will be removed from the PPSR. If there’s a balloon payment at the end of the finance term, you could:

  1. Pay the residual balloon and keep or sell the asset as you wish
  2. Refinance the balloon amount into a new loan and pay it off in regular instalments (with interest)
  3. Trade your asset to purchase another with a new finance agreement, repaying the balloon amount in the process (generally using the proceeds from the trade-in).

Chattel mortgage fees

A chattel mortgage generally comes with various fees which can impact the overall cost of your finance. Here are some common chattel mortgage fees to watch out for.

  • Establishment fee: $150- $550
  • Documentation fee: $150-$495
  • Monthly account keeping fee: $0-$10
  • Extra repayment fee: Depends on loan amount & loan term
  • Early payout fee: $0-$450.
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Fees can have a significant impact on your chattel mortgage costs, so take a look at your lender’s fees before deciding if a finance product is right for you. As an illustration, an $8 monthly account keeping fee would total $480 over a five-year loan period, whereas a $10 monthly account maintenance fee would amount to $600.

Top 5 industries requesting a chattel mortgage

Here are the top five industries in Australia applying for chattel mortgages, based on thousands of loan requests submitted through Money.com.au.

Industry

Building & construction

Average loan amount requested

$84,608

Industry

IT services

Average loan amount requested

$63,397

Industry

Cleaning services

Average loan amount requested

$42,421

Industry

Agriculture

Average loan amount requested

$82,562

Industry

Electrical & lighting

Average loan amount requested

$55,113

IndustryAverage loan amount requested

Building & construction

$84,608

IT services

$63,397

Cleaning services

$42,421

Agriculture

$82,562

Electrical & lighting

$55,113

FAQs about chattel mortgages

Here’s a list of some of the main chattel mortgage providers in Australia:

  • Alex Bank
  • AMMF
  • Angle Auto Finance
  • ANZ
  • Azora
  • Banjo
  • Branded Financial Services
  • CarStart Finance
  • Capital Finance
  • Commonwealth Bank
  • Drive Finance
  • Finance One
  • Firstmac
  • Flexi Commercial
  • Gedda Money
  • Green Light Auto Finance
  • Grenke
  • Group & General Finance
  • Grow Finance
  • Iron Capital
  • Latitude Financial
  • Liberty
  • Macquarie Capital
  • Metro Finance
  • MoneyPlace
  • Moneytech
  • NAB
  • NOW Finance
  • Pepper Money
  • Plenti
  • Rapid Loans
  • Salt & Lime
  • ScotPac
  • Selfco Leasing
  • Shift
  • SocietyOne
  • Thornmoney
  • Vestone Capital
  • Westpac
  • Wisr

While this is an extensive list, not all chattel mortgage providers in the market may be included.

No, you generally don’t need an upfront deposit to secure a chattel mortgage. Lenders will typically finance 100% of the asset price (including GST). There are some exceptions, though, such as if you’re a relatively new business and don’t own a home, when some lenders may ask that you contribute a 10-20% deposit.

Alternatively, some businesses may voluntarily pay a deposit to lower their loan amount and repayments. If you have an existing vehicle you will be trading in, you could use the trade-in value of your old vehicle to purchase the new vehicle, which will also reduce your repayments.

Yes, it’s possible to repay your chattel mortgage early, but there may be extra costs payable, including an early repayment fee. This may negate any potential interest savings.

Yes, sole traders and small businesses can get a chattel mortgage to purchase vehicles or business equipment. You must have an ABN (registered for at least two years).

You must also have enough financial documentation to prove you can service the loan, including interest. Alternatively, you could consider a low doc business loan, which requires less documentation than a traditional business finance application.

If you’re applying online, you can get approved for a chattel mortgage on the same day if you’ve submitted all the right documents and meet the lender’s eligibility criteria. In some cases, you may be asked to supply additional documents or information, in which case approval could take 1-3 business days.

Yes, you may still be eligible for a chattel mortgage if you have bad credit, provided you can demonstrate 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 with an unsecured business loan.

Alternatively, you could apply for a bad credit business loan via a specialist lender. Keep in mind that interest rates for bad credit borrowers may be higher.

Yes, you may be able to claim the interest component of the chattel mortgage as a tax deduction on your business tax return. You can also claim the asset’s depreciation (decrease in value) as a deduction. Tax deductions generally only apply to the business use of the asset (private use will not be deductible).

The difference comes down to ownership of the vehicle or asset. With a chattel mortgage, you own the asset from day one. Meanwhile, a finance lease allows you to ‘rent’ the asset for a period, with the option to assume full ownership of it at the end of the finance term. You may also choose to trade it in for a newer model or refinance the lease.

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Written by

Megan Birot Money.com.au writer

Senior Finance Writer

Megan Birot

Reviewed by

Sean Callery Editor Money.com.au

Editor

Sean Callery

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