Did you know that many motor financiers give cheaper interest rates for business use loans, such as a Chattel Mortgage?
A lot of those financiers also charge no monthly account keeping fees, unlike a Consumer Loan that is predominantly for personal use.
Why Is This?
As unfair as it may seem for those who cannot claim business use on their vehicle and qualify for a Chattel Mortgage, there is a reason why the lender can afford to do this.
Any business use loan is unregulated and does not fall under the same legislation as a Consumer Loan, which is currently protected under the National Consumer Credit Protection (“NCCP”) Act.
Consumer Loan & Chattel Mortgage Differences
A Consumer Loan must have all relevant information for a customer to be able to make the most informed decision as to whether the loan product offered to them suits their objectives and their requirements. This means that all fees, charges and interest rates need to be clear on their contracts to ensure the loan product is suitable.
Business use loans, such as Chattel Mortgage contracts, do not have to provide any of this information and most Chattel Mortgage contracts will not even have the interest rate displayed on the contracts, and you are left up to your own accounting skills to determine if you are getting what you were told.
It is the method of payout figures that allows the lenders to discount fees and interest rates on Chattel Mortgages. Each and every lender may use a similar method, but most will not highlight exactly how it is calculated, or will they advise that the formula is too complex to explain. They have no regulation to display this calculation anywhere on their contracts or terms and conditions.
Unlike a Consumer Loan, that is required by legislation to display their early termination fees either on their contract or in their terms and conditions, this allows a lender that has provided a Chattel Mortgage to recover losses by retaining some of the interest when you go to terminate your Chattel Mortgage early and in most cases, you are much worse off paying your Chattel Mortgage off early than if you had a Consumer Loan and paid that off early.
This gives the lender some level of guarantee that they will at a minimum retain a certain amount of interest, whereas on a Consumer Loan, if the loan was paid within a shorter time frame, all the outstanding interest charges at the time of payout will be rebated and saved and the lender will only retain any early termination fee that they have explained in their contracts or terms and conditions.
This makes the business use loans, such as Chattel Mortgages a better proposition for the lenders and can give them the affordability to reduce interest rates and some fees, where it would not be economical on a Consumer Loan. If you planned on keeping the finance for the full term of the loan, you would be better off with a Chattel Mortgage with the reduced interest rates and fees, but if your intentions were to pay the loan out early, in most cases a Consumer Loan may be a better solution.