About Chattel Mortgage
Chattel Mortgage is another form of finance that is mostly used by businesses. With it, you can get the car you need while using the car itself as the collateral for the loan, which makes it is a secured car loan.
If you are running a business and need a vehicle, you should actually consider getting this. For you to be eligible to use a chattel mortgage on a vehicle, you must use the vehicle for business purposes at least 51% of the time. Once that is ascertained, you have nothing to worry about again.
Once you get a car with a chattel mortgage, the vehicle becomes your property immediately. However, the financer will place a mortgage on the car, making the car serve as collateral for the loan you have taken to buy it. With this kind of loan, you enjoy the benefit of a secured loan without needing to have a property that you will use as collateral.
Generally, a secured loan is one that has a property of equal or proportionate value to the loan attached as security. Lenders do this to hedge their risks and ensure that in case of default, they can still have a property that they can rely on, which they will sell to cover their losses. With secured car finance, there are some benefits which include the fact that the interest rate is usually lower than you will get with an unsecured loan. But it also comes with a disadvantage; the disadvantage is that you need to have a property that you will use as collateral. This makes it unavailable to people who don’t have the property necessary in such cases.
However, chattel mortgages eliminate the need to have a property that you will use as security. The car itself will serve as security while you have the benefits of lower interest. You only have to make sure that you fulfil all the obligations of the loan. Failure to do these might lead to the loss of the car as well as the repayments you have already paid.
The financer also has the peace of mind that you will repay the loan, and if you fail to, they have your car as security.
Why chattel mortgages are good for business
The benefits of chattel mortgage to businesses go beyond the low interest they offer. They are also beneficial in multiple ways for businesses. It offers you tax benefits when getting the loan and throughout the duration of the loan. When you get the loan and buy the car, you can claim GST on the cost of the car since it is a cash sale. The full input tax credit is also available at this point.
Throughout the duration of the loan, you will have the chance to claim interests paid on the repayments. In some cases, it is the lender that claims this, and they pass it on to the borrower. Tax breaks on depreciation will also be available. When you add all these up, you start to see how much you stand to benefit.
With a chattel mortgage, the lender is most likely to finance the whole value of the vehicle, which means you don’t have to spend out of your business funds to get that car you need. You can easily use the money for better purposes and maintain a positive cash flow.
Structuring repayments is also easy with a chattel mortgage. While it will eventually depend on the lender you use, you can have repayments between two to five years, giving you plenty of room when it comes to how you repay the loan. The flexibility in repayments also extend to how much you pay each time. It could be fixed, in which case you pay the same amount periodically throughout the life of the loan. You can also structure the repayment so that it will vary based on the seasonal cash flow. The industry you operate in will determine which one you go for.
The fact that you own the financed asset from the moment you get it means that it will show on your balance sheet as a liability.
What’s a balloon payment?
You could also get the option of a balloon payment. With this, you get to pay the amount that remains after the loan ends in one payment. The higher the amount payable as balloon payments, the lower the periodic repayments you have to pay. But this is not necessarily a good thing; a higher balloon payment generally increases how much interest you have to pay as you won’t be paying off the loan as quickly as you would with lower balloon payment.
Deciding on a balloon payment usually makes sense only when you need to keep repayments low in order to maintain a positive cash flow. Without that purpose? You don’t need a balloon payment, and you must make sure you settle for one that will be easy to pay off at the end of the loan in case you decide to sell off the car.
When getting a chattel mortgage, you must make sure you consider all the necessary factors before making a decision. For example, how long would you be using the vehicle for business, cash flow expectations, and other details? Considering all this beforehand is very important so that you will get full value on your deal.
We can help you with the necessary processing that will grip you to get the car you need through a chattel mortgage. No matter the kind of finance package you’re getting, insurance, it is always important to negotiate every cost. When it comes to getting the right car finance deal, saving cost should always be the priority. But saving costs doesn’t necessarily have to do with the interest rate. Each term of the contract is important, and when handling Ginsberg for you, we always make sure we consider all the terms of the finance agreement to arrive at what we consider the best deal for you.