A chattel mortgage is a car loan most often used for business assets. Many clients get confused with chattel mortgages and standard leases. To add some clarity, let’s look at what they are and how they compare.
Chattel Mortgage meaning
Think of a Chattel Mortgage as a type of loan where the object of the borrowing is used as security i.e., a business vehicle. The vehicle (or chattel) acts as security for the loan with the lender maintaining interest in it. At Toyota Fleet Management, we use chattel mortgages for company cars. However, this type of mortgage could also be used for other types of vehicles and equipment.
All such types of mortgages are listed in a public registry. This enables third parties to have knowledge of them before proceeding with any type of finance agreement with borrowers, who may want to use the property as security for another loan.
During the period of the chattel mortgage, the lender retains conditional ownership of the vehicle.
Why might you need a Chattel Mortgage car loan?
Chattel mortgages are used to finance all types of ‘personal movable property’. In this case, we are referring to vehicles, but they may equally be used for mobile homes on leased land. Businesses in Australia often use chattel mortgages to purchase new equipment, including vehicles or machinery. Because these types of items have a long lifespan, the purchase can be spread over a suitably lengthy period by the seller, which also means that the payments made by the customer are more affordable. At all times, the seller retains the security of the vehicles should the loan be defaulted upon. When proceeding with a Chattel Mortgage, the customer can use the equipment as if it were their own. In the unlikely event that the buyer does default, the seller can reclaim the vehicle and sell it to recoup their losses outstanding on the loan.
Chattel Mortgage vs Lease: Which one is more suitable?
If you are looking to purchase vehicles for your business, the first thing you need to consider is how you will finance it. Although chattel mortgages and traditional leases are both good options, one of them may be more suitable for your needs. Let’s compare the two:
· Lease – A lease is like a long-term rental as you are paying for the use of the vehicle. The sum of money that you pay each month is based upon the length of the lease in years and the mileage. It includes all operating costs such as tyres, servicing and registration. At the end of the lease term, you can simply hand the vehicle back. Toyota Fleet Management provides a range of Lease Funding Options so you can find the one which suits your business needs.
· Chattel Mortgage – A chattel mortgage is a way of financing the vehicle with the risk of the resale value at the end of the term being yours. Monthly payments cover the finance; however, the running costs of tyres, servicing and registration are your responsibility. You will therefore need to budget for these separately. Great news is that Toyota Fleet Management offers a maintained chattel mortgage which includes running costs plus the option to add roadside assist, a fuel card and comprehensive motor vehicle insurance. This option is great for business owners as it is a smart way to purchase vehicles with potential tax benefits built in.
Chattel Mortgage rates
Chattel mortgages will have higher interest rates than mortgages used for property due to the term of years being much shorter. A chattel mortgage is a practical way for a business to finance vehicles required for work. You will be eligible for income tax deductions due to interest charges and depreciation. At the same time, you have peace of mind knowing that the vehicle is an asset of the business, even though you are still paying for it.
For those looking for a Chattel Mortgage in Australia, get in touch with Toyota Fleet Management today.