A personal car loan is a popular finance solution for car buyers, but it’s not always the best loan option for your car purchase. For those buying a business vehicle, a personal car loan may not be the most tax-efficient option. Now, you may be wondering, if not a car loan, then what else is there? Let’s talk about chattel mortgages.
What is chattel mortgage?
A chattel mortgage is a loan designed for business use. Vehicles that will be used predominantly (50% of the time or more) for business purposes can be bought using a chattel mortgage.
Chattel mortgages can be offered with a fixed or variable interest rate. This loan type works similar to other loans, where a lender provides the funds so the borrower can purchase the vehicle. The borrower will then pay back the loan with interest over time.
Benefits of a chattel mortgage
If you’re making a vehicle purchase for or through your business, you could get lower interest rates and fewer ongoing fees with a chattel mortgage compared to a personal car loan. Some lenders allow borrowers to customise their repayments to meet their business cycles or cash flow requirements.
Because chattel mortgages aren’t regulated by the National Consumer Credit Protection (NCCP) Act, you may have an easier and quicker application process. It could also be more flexible when having to prove income to qualify for a loan.
A balloon payment is also a common feature for chattel mortgages. This is a sum paid at the end of the loan term so borrowers can lower their monthly, fortnightly, or weekly repayments.
When you take out a chattel mortgage, you own the car up front. This allows you to put it and the loan on the balance sheet as a liability. You may also be entitled to GST benefits and other tax advantages, such as claiming interest and depreciation costs on the vehicle.
Of course, it’s best to consult with an accountant or other experts about the specifics to see whether you’re eligible for certain tax advantages.
Drawbacks of a chattel mortgage
A disadvantage of a chattel mortgage is that it’s not a regulated loan product under the NCCP Act. You would lose some protection that the NCCP has put in place, such as a clear and concise understanding of your fees, charges, or any early payout penalty calculations. Unlike a regulated loan, these are not required to be written out in your contract or terms and conditions.
If you’re unsure about how to approach this type of loan, working with a car loan broker service may be a good idea. With an expert car loan broker, like the ones at carloans.com.au, you’ll have someone guiding you through the whole process. Contact us today!
Comparing chattel mortgages vs personal car loans
The main difference between a chattel mortgage and a personal car loan is what they’re used for and by whom. Chattel mortgages are designed for business use and commonly utilised by businesses or business owners.
Meanwhile, personal car loans can be used by anyone eligible for a loan. These loans are mostly for buying vehicles for personal use. Although you can use a personal car loan for a business vehicle purchase, it might not be the most tax-efficient way to go about it.
In some cases, personal car loans aren’t available for some business types. For instance, purchasing a vehicle under your company or trust isn’t allowed, as it’s only available for individual or joint borrowers.
Chattel Mortgage vs Car Loan: Side-by-side comparison
| Chattel Mortgage | Personal Car Loan | |
|---|---|---|
| What does it do? | Finance your car purchase for business use. | Finance your car purchase, typically for personal use. |
| Who can use this car loan? | Businesses such as business owners, sole traders, and companies. | Eligible individuals or joint borrowers. |
| How long is the loan term? | 1-7 years. | 1-7 years. |
| What is the interest rate? | Fixed or variable rate. | Fixed or variable rate. |
| When are repayments? | Can be customised to suit business needs. | Monthly, weekly, or fortnightly. |
| Can I add a balloon payment? | Yes. | Yes, depending on the lender. |
How to get a good deal on a chattel mortgage
Shopping around is one of the best ways to find the best deal on your chattel mortgage. Use the comparison rate to see which loan has the lowest interest rates and fees.
Looking at the chattel mortgages available can help you understand the market better. You’ll also know what the going interest rates are, as well as what features are commonly available. Although effective, this method requires a lot of effort and can be time-consuming.
For a quick and easy loan experience, you can always go to carloans.com.au. As a car loan broker service, we’re here to help you get a great deal on your chattel mortgage. Our expert brokers will get in touch with our expansive network of lenders so you can get the best options possible. You get all the savings without the hassle. Get in touch with us today by calling 1300 889 669. Or get a quick quote online for free!