A Chattel Mortgage is a type of loan contract that allows the buyer to take ownership of a vehicle at the time of purchase. The lender provides the buyer with the total loan amount to cover the price of the vehicle (chattel) so that it can be bought outright.
The lender then “mortgages” the vehicle as security, and the buyer repays the loan over a period of 12 to 60 months. The lender registers the loan as a Fixed and Floating Charge with the Australian Securities and Investments Commission (ASIC).
Once the loan has been repaid and the contract has been completed, the lender removes the charge, and the buyer retains a clear title to the vehicle.
Who is it for?
As a commercial finance product, a Chattel Mortgage is designed for sole traders, partnerships and companies who use the cash method of accounting.
Tax Benefits of using a Chattel Mortgage
If the buyer is registered for GST, they can claim back some or all of the GST paid on the loan on their next Business Activity Statement (BAS), rather than making annual claims over the term of the loan.
With a Chattel Mortgage, GST is only charged on the purchase price of the vehicle. GST is not paid on the monthly installments or on the final balloon price (the final installment).
Using a Chattel Mortgage also allows the buyer to claim tax deductions on the interest charges for the loan and depreciation up to the Depreciation Limit (as set by the ATO, $57,466 for the 2012-2013 financial year).
Other Benefits of using a Chattel Mortgage
A Chattel Mortgage has fixed interest rates. This means monthly repayments are also fixed, and all costs are known in advance. This can allow for easier budgeting.
The loan is flexible, and can be repaid over 12 to 60 months (one to five years).
Due to the fact that the loan is secured against the vehicle, interest rates will often be lower than other unsecured loan options.
A deposit or trade-in can be used against the loan. This can lower the overall amount of the loan, and the amount paid back in interest.
Repayments can be set out so there is a larger balloon payment at the end of the loan term, to aid business cash flow requirements.