Chattel mortgages: The business vehicle loan option that comes with extra benefits

Picture: Shutterstock
Picture: Shutterstock

This article is sponsored by Savvy.

With all the bad news continually flowing about COVID-19 and the impact it's having on the economy and businesses you might have missed a bit of good news for those who happen to be in the market for a new work vehicle.

As part of the Australian Government's strategy to support businesses through the crisis it has announced an extension of the $150,000 instant asset write-off until 31 December 2020.

This means businesses with an annual turnover of less than $500 million who purchase assets at a cost of less than $150,000 (ex GST) can claim an immediate deduction providing it's bought between 12 March 2020 and by 31 December 2020.

For savvy business owners this means the next five months are the perfect time to get organised and get into that new car or truck that's been on the to-buy list.

The next step is working out how to finance that purchase so you don't miss out on this opportunity.

For businesses, one of the the best options is a chattel mortgage. What makes a chattel mortgage a smart choice is that as well as giving you access to the money you need straight away it can deliver you some significant financial advantages you won't get with other kinds of car loans. It also allows more flexibility to tailor repayments to suit your particular business.

Move forward: An unreliable work vehicle can be a handbrake on a business' growth..Picture: Shutterstock

Move forward: An unreliable work vehicle can be a handbrake on a business' growth..Picture: Shutterstock

What is a chattel mortgage?

A chattel mortgage is a a type of finance specifically designed for businesses and used predominantly for the purchase of a vehicle. It's made up of the "chattel" - the car - and "mortgage' - the loan.

The customer takes ownership of the vehicle at the time of the purchase, while the financier takes a mortgage over the vehicle as security for the loan. Once the payments are completed, the mortgage is removed and the title to the car belongs to the customer.

Who is eligible?

To apply for a chattel mortgage you must be a registered Australian business - that is an ABN holder - and be intending to use the car for business purposes for more than 50 per cent of the time. This makes a chattel loan ideal for business owners who want finance for a vehicle they want to use for both work and play.

What are the benefits?

Tax savings

Because a chattel mortgage is designed for businesses it also delivers a range of tax benefits that you can immediately take advantage of. You can claim the GST paid on a vehicle instantly when you lodge your next BAS. You can also claim interest paid, depreciation and in many cases the Fuel Input Tax credit.

Lower interest rates

Compared to unsecured loans, the interest rates for a chattel mortgage will usually be lower because the asset is secured by the lender.

No deposit needed

In many cases, 100 per cent of your chattel loan can be financed with no upfront deposit needed due to the secured asset nature of the loan.

Work and play: Chattel mortgages are ideal for business owners who want to finance a vehicle for work but also to enjoy on the weekend, Picture:Shutterstock

Work and play: Chattel mortgages are ideal for business owners who want to finance a vehicle for work but also to enjoy on the weekend, Picture:Shutterstock

Tailored repayment options

No two businesses are the same. Many can be seasonal, peaking at some times of the year and experiencing slower periods in other months. Recognising this, chattel mortgages are designed to give business owners flexibility in the way they set up repayments to suit their particular situation.

For example, you could opt for smaller repayments during the slower times and then ramp them up when sales are strongest. By being smart when they set up their loan, businesses can scale their repayments to ensure they maximise growth but minimise the disruption to cash flow that can severely hinder its operation.

Speaking to an experienced loans broker who understands a business' needs can be invaluable in helping you set up the the perfect repayment strategy for your business.

Balloon payments

Another handy advantage of chattel mortgages is the option to have a balloon payment - a lump sum that is paid at the end of a loan's term that is larger than all of the earlier payments. Loan terms on a chattel mortgage can range from 12 months to seven years or beyond.

BUYERS TIP:

Make sure you arm yourself with pre-approval for your chattel mortgage before you head into the car dealership to make your purchase. Knowing your price limit puts you in a stronger negotiating position with the sales person. And you're less likely to be caught up in the stress of decision making in the heat of the buying moment and end up spending more than you planned.