What is a Chattel Mortgage?
A Chattel Mortgage is the name given to to a finance agreement that provides funds to purchase an asset where the finance provider accepts the asset as security for the loan. Chattel Mortgages are a popular option for business owners as it gives you ownership of the asset from day one and appears as an asset on your balance sheet.
What are the benefits of a Chattel Mortgage?
A Chattel Mortgage is a popular finance option for self-employed or small business owners, as it provides good flexibility around repayment. In some cases, 100% of the loan may be financed – meaning no upfront deposit needs to be put down. Other benefits of a Chattel Mortgage include:
✔ Lower interest rate. Compared to unsecured loans, the interest rate for a Chattel Mortgage will typically be lower due to the asset being secured by the lender.
✔ Flexible payment structure. You can choose to set up a balloon/lump sum payment at the end of the term to lower your monthly repayments. However a large balloon payment will increase the amount of interest paid over the loan term.
✔ Tax credit benefits. Ability for businesses to claim depreciation and interest costs depending on the level of business use of the asset, or in some cases, claim an input text credit almost immediately as the GST inclusive price of the asset is financed. This can typically benefit businesses with an ABN.
What is the difference between a Chattel Mortgage and a Lease?
With a Chattel Mortgage, you take ownership of the asset and are responsible for all operating and maintenance costs while you pay off the loan. A Lease on the other hand, is an agreement in which the lessor (the owner of the equipment - usually the lender), provides you (the Lessee) the right to use the equipment in return for a payment over a particular period of time, and the asset is not listed on the business' balance sheet. At the end of the lease term, the Lessee takes ownership of the asset by paying out any residual (or Balloon) payment owing.
Can you pay off a Chattel Mortgage early?
You may pay off a Chattel Mortgage early, however early repayment fees generally apply and are calculated at the time of settlement. Early repayment fees may vary according to the lender, therefore it's best to let us know up front if possible if you intend to pay back the loan early to ensure you have the right Chattel Mortgage.