Benefits of a Chattel Mortgage for Business Equipment Financing

Utilising A Chattel Mortgage for Business Finance

What are the benefits of using a Chattel Mortgage for business equipment financing?

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

A Chattel Mortgage loan is a simple yet effective finance option designed for business plant and equipment purchases. Here are six rules to consider when arranging finance for your business that will ensure that you retain full control over the loan process and save money in the process.

A well constructed Chattel Mortgage loan can give you a real competitive edge! The six rules to follow when negotiating a Chattel Mortgage are set out below.

Rule #1

Understand the mechanics of a Chattel Mortgage.

Basically, the Lender takes a security over the assets to be financed. The borrower owns the assets. A Chattel mortgage loan is a very old financial instrument and is well proven and documented. If you are going to finance your house or business, it's worth-while doing the research on chattel mortgages - and finding out more about them.

The difference between a hire purchase loan and a chattel mortgage loan is . .

Business Plant & Equipment Finance

Looking for the best way to finance your business plant & equipment? Well, you need look no further! Simply submit our 2-minute business loan enquiry form ... and we'll help get you qualified for the best rate Plant & Equipment loan available from our national panel of independent business finance brokers. We also have access to the best rates & options for Business Cashflow finance. So, why not give us a go ... no charge, no obligation!

... get a business loan quote ...

with a chattel mortgage, the ownership of the goods stay with the borrower ... i.e. the assets must be owned by the client.

This is similar to a property mortgage loan. The borrower owns the property and the lender registers an interest in the property by having the mortgage loan registered in the title.
with a hire purchase loan, the lender owns the asset/s until the borrower has repaid the loan with interest. The borrower has full use of the asset but does not own it. The borrower also has contractual obligations in relation to the maintenance, insurance, etc. of the asset.

Rule #2

Understand the difference between a well-constructed Chattel Mortgage and a dealer-bundled loan offering.

The best way to buy goods is to separate the purchase of the goods from the loan that finances them. Obviously not all, but many in-house loan finance deals can be very expensive - and they are not transparent.

It can be quite difficult, even if you know what you are looking for in ascertaining how much interest you are paying, to establish the true cost of the goods that you are borrowing against.

What often happens is, the loan interest rate is discounted - so it appears to offer savings ... and then the dealer margin is loaded back up into the goods ... or the other way around. Unless you can unbundle a package from the seller of the dealer be very careful of the package.

What may seem like a bargain could turn out to be very expensive when you unravel the transaction and look at the individual components.

Handling trade-ins in a dealer or sellers bundled loan solution.

It's important that you do not allow the trade-in to be put into the loan bundles solution. This is where dealers and sellers make a lot of money at your expense. If there are well established second-hand markets for the goods that are being bought (Gumtree, Ebay, etc.), then the buyer should ascertain the market value of the goods to be traded. Once this is established then you are in a position to negotiate with the trade in value. It'll help you see how much flexibility that the seller really has on price - and how the deal is being structured.

If the purchase amount is significant (if you need to finance the purchase, we'll assume it's significant) then it would be a good idea to run the numbers past your accountant. There can be some significant tax implications if the deal is not well-structured.

Better still, talk to a finance or mortgage broker. He or she will know precisiely how to structure a deal to your specific business needs.

Rule #3

Get pre-approval for the loan before you buy the stuff!.

No instructions here ... this is simple, contact a Mortgage Broker to design the right package for you - and he/she will be able to lodge an application for 'assessment'. Having the finance pre-approved will also give you a bit more control in negotiating the purchase.

Rule #4

Understand the T&Cs.

It's important that you know and understand the terms and conditions of your Chattel Mortgage loan, particlarly as they relate to your obligations under the loan contract.

The lender has a clear claim to the goods in the event of default - and has many rights as the borrower has obligations! If you are involved in a large transaction, you should seek legal advice to explain the roles and obligations on all parties t the transaction. The cost of the advice could be very cheap compared to the cost of litigation of a loan that goes bad.

The fact that a Chattel mortgage loan is registered with a Government or Financial regulator under a Bill of Sale gives some idea of the legal structure and status of a Chattel Mortgage loan.

As with Hire Purchase loans, the loan period can be negotiated - usually somewhere between 12 and 60 months. However, in larger transactions, they can be for negotiated for longer periods of time.

Rule #5

Structure your payments to suit your cash flow.

One of the biggest mistakes when applying for loan finance and, particularly with Chattel Mortgage loans, is in not knowing the flexibility the lender can have on your specific circumstances.

Many businesses and householders are subject to seasonal, variable or contract payments. If this is you, ask your broker if the the repayments for the Chattel Loan can vary to fit around your seasonal income.

A lender can adjust the loan repayment schedule quite easily. There may or may not be an adjustment in interest on the loan ... but for the convenience of marrying your loan payment to your cash flow is something worthy of consideration.

At the first interview (with your broker and/or the lender), have evidence of your receipts on the pattern of income payments over a few years. Bank statements showing deposit and any contracts stating terms and conditions of payment will be necessary for a lender to consider.The reason for doing it at the first interview is - it sets the posture and they will be more inclined to look at it in a positive light.

Rule #6

Consider a balloon payment to keep your monthly loan payments down.

As with a Hire Purchase loan, or an equipment lease agreement, balloon (aka residual) payment options should be available. A balloon, or residual payment is the last payment in a loan that can represent a substantial portion of the original loan. Loans can be structured this way to keep your payments low. This is because you are paying off only a smaller portion of the loan in your monthly repayments.

However there are some traps:

Ensure that the sale cost of the goods at the end of the loan is likely to be at least equal to the balloon payment. This is a common mistake made by many. It can lead to you having to re-finance the goods at the end of the initial loan - when they may be only half the value of the loan. Worse still, having to financing goods that you do not own!

Always seek financial and taxation advise when entering into a legal agreement. A Chattel Agreement is a legal document and you need to obtain the correct financial advice at all times.

Published: Sunday, 1st Aug 2021
Author: 150

Car Loans Articles

10 Car Finance Traps Every Australian Should Steer Clear Of

When it comes to financing a car, the importance of vigilance cannot be overstated. Navigating through the maze of loan offers and financial jargon can be overwhelming, making it all too easy to overlook critical details that could cost you dearly in the long run. - read more

Finding the Sweet Spot: How to Balance Car Loan Terms with Your Lifestyle

Finding the perfect car is an exciting adventure, but securing the right car loan is where the real journey begins. The terms of your car loan can significantly influence your financial health and lifestyle. It's not just about the monthly payments, but also about how the loan will fit into your life for years to come. That’s why understanding the importance of finding a loan that complements your financial situation and lifestyle is crucial. - read more

The Importance of Comparing Car Loan Rates Before Buying a Vehicle

When purchasing a vehicle, understanding car loan interest rates is a critical aspect that can significantly affect your overall financial commitment. But what exactly are car loan interest rates, and why should they matter to you? - read more

How to Budget for Your Dream Car: Tips for Smart Financing

The anticipation of buying your dream car can be both exhilarating and daunting. It's a milestone that signifies personal success, a reward for hard work, and the freedom to explore the open road in a car that you truly adore. However, acquiring that dream vehicle is not merely about making a wish and waiting for it to come true; it requires smart financial planning and strategic decision-making. - read more

Navigating Your Credit Score: How It Affects Your Car Financing Options

Understanding your credit score is a key part of navigating the world of car financing. Whether you're looking to buy your first vehicle or you're an established buyer considering an upgrade, your credit score can significantly impact your financing options. In this section, we'll delve into why your credit score is so essential and provide a primer on how it's calculated. - read more

Don't Sign Yet! Checklist for Negotiating Car Loan Agreements

Embarking on the journey to purchase a new car is an exhilarating experience, full of the promise of fresh adventures and the satisfaction of ownership. Yet, beneath the sheen and thrill, important financial decisions are at play, particularly when it comes to your car loan agreement. Understanding the importance of negotiating the terms of your car loan cannot be overstated, as a savvy deal can lead to significant savings over time. - read more

Expert Advice: What to Do If Your Car Loan Application is Denied

Applying for a car loan can be an exciting yet nerve-wracking process. You've found the perfect vehicle and now you're ready to make it yours. However, navigating the car loan application can sometimes bring disappointment if your application is denied. - read more

Finance News

ASIC's Findings on Car Finance: High Fees and Early Defaults

18 Nov 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) has recently conducted a comprehensive review of the nation's motor vehicle finance sector, uncovering significant issues that raise concerns about consumer protection and lending practices. - read more

Economic Pressures Drive Australians Towards Premium Used Cars

18 Nov 2025: Paige Estritori

As Australians grapple with escalating living expenses, a notable shift is occurring in the automotive market. Consumers are increasingly turning to premium used vehicles as a cost-effective alternative to new car purchases. - read more

Extended Research Periods Mark Australian Car Buying Trends

18 Nov 2025: Paige Estritori

The Australian car market, recognized as one of the most competitive globally, is witnessing a trend where consumers are dedicating extended periods to research before finalizing their vehicle purchases. On average, Australians now spend approximately 2.8 months evaluating options before making a decision. - read more

ASIC Takes Legal Action Against Car Finance Provider for Alleged Lending Breaches

02 Nov 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) has commenced civil penalty proceedings in the Federal Court against car finance provider Money3 Loans Pty Ltd, alleging breaches of responsible lending obligations. This action underscores ASIC's commitment to enforcing compliance within the financial sector to protect consumers. - read more

Rising Car Loan Delinquencies Signal Financial Strain Among Australians

25 Oct 2025: Paige Estritori

Recent data indicates a concerning rise in car loan delinquencies across Australia, with a 13% increase in vehicle repossessions over the past six months. This trend underscores the growing financial pressures faced by many Australians, as inflation and high interest rates continue to impact household budgets. - read more

Westpac Divests Auto Finance Loans in Strategic Move

25 Oct 2025: Paige Estritori

In a significant strategic shift, Westpac Banking Corporation has announced its decision to sell its auto finance loan book to Resimac Group. The transaction, valued between A$1.4 billion and A$1.6 billion, aligns with Westpac's ongoing strategy to streamline operations and focus on core banking services. - read more

Bank Australia Ends Financing for New Fossil Fuel Vehicles

17 Oct 2025: Paige Estritori

In a bold move towards sustainability, Bank Australia has ceased offering loans for new petrol, diesel, and hybrid vehicles as of February 2025. This strategic decision aligns with the bank's commitment to achieving net-zero carbon emissions by 2035 and underscores its dedication to promoting environmentally friendly transportation options. - read more

Click for more Finance News

Need Help Finding a Loan?

Get a free car loan eligibility assessment and compare offers tailored specifically to your circumstances.

All finance quotes are provided free (via our secure server) and without obligation.
We respect your privacy.

Knowledgebase

Credit Score:
A numerical expression based on a level analysis of a person's credit files, representing the creditworthiness of an individual.