What is a Chattel Mortgage?
Despite its formal name, Chattel Mortgage us one of the most straightforward and flexible finance options available.
If you're a business owner in North Queensland, exploring ways to finance vehicles or essential equipment, a Chattel Mortgage could be the ideal solution.
What is a Chattel Mortgage?
A Chattel Mortgage is a type of business loan used to purchase assets like vehicles, machinery, or equipment. The term "chattel" refers to the asset being financed and "mortgage" refers to the loan itself.
Here's how it works:
- You borrow the funds to purchase the asset
- The asset (e.g. a work ute or excavator) is used as security for the loan
- You own the asset outright, from the start
- You repay the loan over time, often using income generated by the asset
If repayments aren't met, the lender may repossess the asset, but until then, it's yours to use and claim as a business asset.
Benefits of a Chattel Mortgage
Chattel Mortgages offer several advantages for business owners:
Ownership From Day One
Unlike a lease or hire purchase, you own the asset immediately.
Flexible Loan Terms
Choose repayment terms from 2-5 years.
Lower Interest Rates
Typically lower than unsecured loans, with fixed or variable options.
Customised Repayments
Structure repayments to suit seasonal cash flow.
Balloon Payments
Reduce monthly repayments by deferring a portion of the loan to the end.
Tax Benefits
Claim GST input tax credits, interest and depreciation (depending on business use).
What is a Balloon Payment?
A Balloon Payment (also called a residual value) is a lump sum due at the end of your loan term. It's a way yo reduce your monthly repayments during the loan period.
For example:
- Higher balloon = lower monthly repayments
But you'll pay more interest over time.
Balloon Payments are great for managing cash flow, but it's important to ensure the final amount is manageable, especially if you plan to sell the asset to pay it off.
Tax Implications of a Chattel Mortgage
One of the biggest perks of a Chattel Mortgage is the potential tax advantages.
- You can claim the GST on the purchase price upfront.
- You may be able to claim interest and depreciation on the asset, depending on how much it's used for business.
Always speak with your accountant to understand how a Chattel Mortgage will affect your tax position.
Things to Consider Before you Apply
Before committing to a Chattel Mortgage, it's important to consider:
- How long you'll use the asset in your business
- Its effective life and resale value
- Your cash flow and ability to manage repayments
- Any fees or charges associated with the loan
Remember: The best finance deal isn't always the one with the lowest interest rate, it's the one with the best overall value, including total repayments and flexibility.
Is a Chattel Mortgage Right for Your Business?
If you're looking to own your business vehicles or equipment upfront and want flexible repayments with potential tax benefits, a Chattel Mortgage could be the ideal solution.
At RLA Finance, we help North Queensland businesses find tailored finance solutions. Whether you're a tradie, farmer or a small business owner, we'll help you choose the right option for your needs.
With us, you only need to go though the initial setup process once. From there, we're here for the long haul, ready to support you with tailored solutions and expert advice throughout your financial journey.