Benefits & How To Apply
In our chattel mortgage guide:
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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.
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.
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
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)
Heavy vehicles (Tier 2)
Business machinery or equipment (Tier 3)
Specialised equipment (Tier 4)
Eligibility requirements for a chattel mortgage will vary between lenders, but generally include:
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.
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.
Vehicle 1 | Vehicle 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 |
‘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.
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.
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.
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.
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 business | Business with low documentation | New business/startup | Sole 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 |
“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
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.
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 payment | Chattel 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 |
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:
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.
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 |
Industry | Average loan amount requested |
---|---|
Building & construction | $84,608 |
IT services | $63,397 |
Cleaning services | $42,421 |
Agriculture | $82,562 |
Electrical & lighting | $55,113 |
Here’s a list of some of the main chattel mortgage providers in Australia:
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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