Benefits of a Chattel Mortgage for Business Equipment Financing

Utilising A Chattel Mortgage for Business Finance

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

Comparing Car Loans: Insights for Australian Buyers to Make Smart Choices

Securing the keys to a new car is an exhilarating experience for any Australian buyer. However, before the rubber meets the road, making an informed decision about car financing is critical. The car loan landscape in Australia offers a variety of options, each with its unique benefits and challenges. Choosing the right car loan can significantly influence your financial well-being and drive your satisfaction with your purchase. - read more

How to Build an Emergency Fund for Unexpected Car Costs

Owning a car comes with a lot of responsibilities and unexpected expenses. From regular maintenance to surprise repairs, the costs can quickly add up and create financial stress. - read more

Your Essential Guide to Documentation for Car Loan Success

In the journey to securing a car loan, understanding the importance of proper documentation is a crucial first step. Proper documentation not only saves time but also significantly boosts your chances of approval. Lenders pay close attention to your paperwork, using it to gauge your financial reliability and commitment. - 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

5 Essential Steps to Build a Strong Credit Profile for Car Financing

Building a strong credit profile is crucial when it comes to securing car financing. In today's financial landscape, your credit score can significantly impact the kind of loan offers you receive, making it more important than ever to maintain a healthy credit report. - read more

Car Loan Hidden Charges: What Australians Need to Watch Out For

Australians have a variety of car financing options at their disposal when the time comes to purchase a new vehicle. From dealer finance to personal loans and leasing agreements, the variety of choices can be both empowering and, at times, overwhelming. Opting for a car loan is a common route, giving buyers the ability to spread the cost of their new set of wheels over time. - read more

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

5 Essential Steps to Build a Strong Credit Profile for Car Financing

Understanding Loan Criteria: Tips for Australian Car Buyers

Loan criteria refer to the set of standards and requirements that lenders use to evaluate the eligibility of an applicant for a car loan. These criteria help lenders determine the risk associated with lending money to a potential borrower. - read more

A Step-by-Step Guide to Securing Your Pre-Approved Car Loan in Australia

A pre-approved car loan is a financial agreement where a lender approves a borrower for a specific loan amount before the borrower selects a vehicle. This type of loan sets a clear budget, giving car buyers a defined spending limit while providing a streamlined and efficient car shopping experience. - read more

Choosing Between Long-Term and Short-Term Car Loans: What Australian Drivers Need to Know

When it comes to purchasing a car, one of the biggest decisions to make is choosing between a long-term and short-term car loan. Understanding car loans and their significance can make a substantial difference in your financial future. - read more

Car Loan Hidden Charges: What Australians Need to Watch Out For

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

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

Finance News

Auditor Deregistered After Brite Advisers Collapse

30 Jun 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) has deregistered auditor David Makowa, previously of DM Advisory Services, due to his role in the downfall of financial advice firm Brite Advisers. This decision follows Makowa's acceptance of a court-enforceable undertaking in which he agreed to surrender his auditor registration permanently, pledging never to re-apply. - read more

US Involvement in Israel-Iran Conflict Sparks Financial Market Concerns

23 Jun 2025: Paige Estritori

The escalating likelihood of the United States engaging militarily in the Israel-Iran conflict has raised alarm among investors, potentially leading to significant market volatility. This concern was highlighted by the global financial advisory firm, deVere Group, as tensions heighten in the Middle East. - read more

Global Markets Brace for Oil Price Surge Following US Strike on Iran

23 Jun 2025: Paige Estritori

The recent US military attack on Iranian nuclear facilities has raised expectations of a significant oil price spike as global markets prepare to resume trading. Announced by former President Donald Trump, the attack marks an increased US involvement in the Middle East, which analysts believe could lead to heightened volatility across financial markets. - read more

Trump Mulls Change of Heart on Firing Fed Chair Powell

21 Jun 2025: Paige Estritori

US President Donald Trump is once again contemplating the dismissal of Federal Reserve Chair Jerome Powell, whom he has criticized for not lowering interest rates. Trump expressed his dissatisfaction with Powell's decisions in a Truth Social post, suggesting he might change his mind about firing him. Despite acknowledging that his strong criticisms make Powell's task challenging, Trump remains focused on his agenda for reduced rates, especially with Powell's term set to end in May 2026. - read more

APRA Clarifies HELP Debt Considerations in Home Loan Assessments

20 Jun 2025: Paige Estritori

The Australian Prudential Regulation Authority (APRA) has released pivotal updates to the Prudential Practice Guide APG 223 and Reporting Standard ARS 223.0, focusing on how Authorised Deposit-taking Institutions (ADIs) should integrate Higher Education Loan Program (HELP) debt into home loan evaluations. The changes are aimed at enhancing regulatory clarity and acknowledging the individual circumstances of borrowers, including the nuances of their HELP debts, without compromising prudent lending practices. - read more

Economic Unrest Spurs Increased Reliance on Financial Advisers

20 Jun 2025: Paige Estritori

In the face of ongoing economic turmoil encompassing inflation, market volatility, and other financial stresses, a global survey from Natixis Investment Managers, conducted by CoreData Research, has highlighted a growing trend: investors are increasingly relying on their financial advisers. With 91 per cent of surveyed investors expressing trust in their financial advisers for investment decisions, this highlights an unmistakable shift amidst financial uncertainty. - read more

Global Central Banks Intensify Focus on Gold Reserves

18 Jun 2025: Paige Estritori

Recent data from the 2025 Central Banks Gold Reserve Survey indicates a renewed focus on gold among the world's central banks. As these financial institutions adapt to the changing economic landscape, their strategies increasingly involve boosting their gold reserves. - read more

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

Working Capital:
A measure of a company's short-term financial health, calculated as current assets minus current liabilities.