If you are looking to finance the purchase of business equipment, one of the best ways to achieve this is through a chattel mortgage. It is a popular financing option available in Australia.
What is a Chattel Mortgage?
The chattel mortgage represents a financing option where customers or loan applicants receive ownership of the equipment at the beginning of the agreement. They then commit to repayment over some time. Typically it is distinguished from other options due to the transfer of ownership that occurs at the early stage of the process.
How Does the Chattel Mortgage Financing Work
With this finance option, the lender provides you with the fund you require to make the equipment or vehicle purchase. Then you make the purchase using the funds in your name. As such, ownership of the vehicle or equipment accrues to you.
Then, the lender takes an interest in the chattel you purchase as security for the loan. As such, you execute a mortgage agreement in favour of your lender. Then, you commit to payment of the purchase sum over a specific duration in a specified manner.
Upon full discharge of your obligation under the agreement, you then extinguish the security interest of the lender with complete interest back to you. You should know that ownership remains with you throughout the process.
Frequently Asked Questions
Here are the answers to some questions that you might have as you navigate through chattel mortgage financing.
You stand to gain loads of advantages with the chattel mortgage financing, and they include flexible repayment structure, balloon payment, possible tax reduction, fixed interest rate, and flexible funding, among others.
The chattel mortgage financing option is suitable for both individuals and businesses. However, it only applies where you plan to use such vehicle or equipment for business purposes.
This depends mostly on the purpose to which you apply your chattel to. Typically, if you use the vehicle or equipment for business purposes, you can claim tax reductions on the interest charged on your loan and the depreciation cost of the car. However, the limit of your possible tax deduction gain is that which the Australian Tax Office sets.
You can enjoy a balloon payment with the chattel mortgage option. It involves a situation where you defer loan payment to the final stage of the loan. In such an instance, it allows you to reduce your monthly or biweekly repayments.
There are various financing options that you can take advantage of as a business. The chattel mortgage represents one of this major option. And it’s a great option that you can use to finance various purchases.
So, if you’re looking to purchase special equipment or vehicle, you can use the chattel mortgage option. However, if you’re looking for more general cash inflow, it would be best to go for another option.