cars, utes

Hansy Mannil Jul 10, 2023

What is a chattel mortgage and how does it work?

A chattel mortgage involves a finance company lending you the money to purchase a vehicle that will be primarily used for business purposes. Set repayments are then made on a monthly basis.

You’ll own the vehicle outright, however, the finance company will place a “mortgage” over the vehicle, as security against the loan.

Once the loan and any Residual Value (the final balance on the vehicle) has been repaid, the finance company will remove the mortgage. Alternatively, you can choose to re-finance the Residual Value or trade the vehicle in.

What are the benefits?

Benefits include:

  • Flexible loan repayment periods, ranging from two to seven years
  • You may have the option to reduce your monthly repayments by setting a final balance (residual value or balloon) payment of up to 50%. This may depend on the type and age of the vehicle.
  • Increase your cash flow
  • The potential to claim tax deductions if the car is being used for business purposes
  • The potential to claim Input Tax Credits if you are registered for GST

A chattel mortgage taken out with Stratton Finance also has these additional benefits (subject to lender selection):

  • Fixed interest rate and monthly repayments for the duration of the loan
  • Repayments can be aligned with your or your business' cash flow

Who would it suit?

Both businesses and individuals are eligible for a chattel mortgage, as long as the car is being used predominantly for business purposes.

A chattel mortgage is a good choice for those who are registered for GST on a cash accounting basis, as you should be able to claim the GST from the vehicle’s purchase price as an Input Tax Credit on your next Business Activity Statement.

Are there alternatives?

It could also be worth considering a car lease and a commercial hire purchase if you’re a business owner looking to finance a vehicle. Alternatively, if you’re an employee looking to finance a vehicle under a car allowance, you may also want to think about a Non-Maintained Novated Lease or a Fully Maintained Novated Lease, both of which come with significant tax benefits.

To discuss your individual needs in detail and secure the right finance option for you, speak to one of the Stratton Finance team on 1300 787 288.

What tax and GST can I expect to pay?

If the car is being used for business purposes, you may be able to claim a tax deduction on the loan interest charges, as well as on the depreciation value of the vehicle, up to the Depreciation Limit set by the Australian Tax Office.

Tax benefits are available on this type of loan, speak to your accountant to find out more.

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