If you're looking to buy a car for business purposes, A Chattel Mortgage may be an option as it may be beneficial at tax time. But what it is exactly and what are the features that come with this type of loan? Here we break it down for you:
What is a Chattel Mortgage?
A Chattel Mortgage is primarily used to purchase an asset for business use. Structured similarly to a regular mortgage, the lenders provide funds to purchase the asset (known as a Chattel) and register their security interest on the Personal Property Securities Register (PPSR) for the life of the loan. When all loan repayments have been made, you will have a full ownership of the asset.
Who are chattel mortgages for?
As a general rule, a Chattel Mortgage is utilised when the financed asset is to be used wholly or primarily for business purposes (that is, the asset will be used for business more than 50% of the time). Although a Chattel Mortgage can be used to finance a variety of movable equipment types, it is usually used to finance motor vehicles.
Benefits of chattel mortgages for business owners
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.
Be sure to speak with your accountant or financial advisor to understand the tax benefits of a Chattel Mortgage for your business. If you choose to have a balloon payment, make sure the amount of the payment is suited to your circumstances and is manageable at the end of the loan.
It's important to note that a Chattel Mortgage is NOT regulated under the National Consumer Credit Protection Act (NCCP Act). Accordingly, it is important to seek advice regarding the suitability of the product and to fully understand the agreement terms before you sign.
At Pepper, our Chattel Mortgage product is known as a Commercial Loan & Mortgage. To learn more, give us a call on 13 73 77 or get in touch with an accredited Pepper Money broker. They're there to help.
This article provides you with factual information only, and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. Neither Pepper nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in this article. For information about whether a Pepper loan may be suitable for you, call Pepper on 13 73 77.