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November 28, 2013

Chattel Mortgage – Vehicle Finance

For businesses looking to finance vehicles for their commercial fleet, there are a variety options available. One of the best ways to procure vehicles for business use is through a chattel mortgage. A chattel mortgage comes with a wealth of benefits and enables businesses to significantly reduce expenses when procuring cars for business use.

What is a Chattel Mortgage?

A chattel mortgage is a special commercial vehicle finance scheme for businesses, sole proprietors and partnerships which lets them procure vehicles which are primarily for business use. In a chattel mortgage, businesses form finance contracts with financing firms which loan them the money to make a car purchase. At the same time, the firm also takes out a mortgage on the purchased car by way of collateral. Ownership is transferred immediately to the business, and they start using the car immediately. As repayment, the business pays the firm monthly instalments for duration of time, both of which are agreed to in advance and put in the contract.

What are the benefits?

Chattel mortgage is a really convenient way and flexible system to procure commercial vehicle finance. Some of the benefits derived from chattel mortgage include – 

1. Depreciation – Unlike leasing, as the asset is invoiced to the end user, they can immediately start to depreciate the asset. 

2. GST – Again, as the asset is invoiced to the end user, they can claim back the GST. If cash flow allows it, some business will finance ex GST and pay the GST themselves; allowing them to claim back the GST on their next BAS statement without having to pay interest on the purchase GST amount for the life of the loan. 

3. Attractive options on completion of tenure – Also, on the completion of the repayment tenure, businesses have to option to either retain ownership, or to trade in the car for a new one and start a new chattel contract, enabling them to acquire latest models of vehicles without having to purchase them. 

4. Flexible balloon amount – On a chattel mortgage the end user can choose any balloon value at all; meaning they can make it high to reduce the regular repayments or even zero to give them full ownership without a final repayment. 

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