Difference between a Chattel Mortgage and Consumer Loan for a car purchase
What is the difference between a Chattel Mortgage and a Consumer car loan?
If you’ve never heard of a Chattel Mortgage you are not alone. Understanding the differences between a Consumer Car Loan and a Chattel Mortgage could mean the world of difference to your next car finance.
The main difference between a Consumer Car Loan and a Chattel Mortgage is the way the car is used. A Consumer car loan is designed for people who use their car for personal use and maybe some business use (including for work)
A Chattel Mortgage is a business use loan product. If you are in business or use your car for work more than 50% of the time, you may be eligible for a Chattel Mortgage.
At the end of the day, the final result is the same. The financier will lend you the funds and places a financial interest on the car as security for the loan. With a Chattel Mortgage, this is a mortgage. In both instances, you still own the vehicle from the day you purchase it, it is just in the way the loan is structured that is different.
If you qualify for a Chattel Mortgage, you are likely to receive the benefit of a slightly lower or more competitive interest rate along with reduced or no monthly account keeping fees.
It’s all in the substantiation (proof of information)
When you apply for a Consumer Loan, you need to substantiate your financial circumstance through substantial evidence supply. This could be payslips, confirmation of employment from your employer, scrutiny or supply of evidence of declared assets, digital bank statement requests that show your income is deposited into your account, and your spending habits. Consumer loans are regulated under the National Consumer Credit Protection Act (NCCP) and provide strong protections for consumers who may not be as financially savvy as a business customer. Under the NCCP items like fees, charges, and interest rates, early payout penalties and calculations must be provided in a clear and easy-to-understand manner. This is a great thing for consumers as it means the average person can determine whether the loan they are taking is suitable for their personal financial circumstances.
Chattel Mortgages are not regulated under the NCCP which can mean fewer onerous requirements for proving income. You will likely still have to supply evidence, but not the same as a Consumer Loan.
Because it is a commercial product, it may mean that you would lose some protection that is afforded to consumers under the NCCP Act. A good broker will still tell you about fees and charges or early payout penalties and calculations, but these are not required to be written into your contract or Terms like a Consumer Loan is required to do.
Bottom line, it comes down to your circumstance whether to take a Chattel Mortgage. If your business is structured as a company or trust you may have to take out a Commercial loan product like a Chattel Mortgage.
If you are a sole trader or partnership, both options should be available to you and likely will have little difference from potential tax deductions. If your business is registered for GST, you are likely to be able to claim input tax credits from the purchase of the vehicle.
See more about the benefits of a Chattel Mortgage
Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.
Get In Touch
Locations
Townsville
Why use a finance broker
Benefits of using a Finance Broker
There are quite a few benefits in using a finance broker. In this fast-paced world with little time and lots of things grabbing your attention, it can be difficult to navigate finance, especially if you have no idea where to start.
Saves you time
A Brokers job is to shop around for you. Think of a broker as a personal shopper!
Imagine you are looking for a fridge to buy. You do the research and you settle on a particular make and model. The next job is to go from one retailer to another to get the best price. That takes time and effort to save you potentially a few hundred dollars. Now imagine if you had someone doing that for you! You get a good deal AND you've saved a lot of time.
Brokers do that same thing, but with finance. The primary role of a Broker is to shop around for you. A broker has regular contact with the banking and finance industry and has knowledge of offers and great terms not offered to the general public. Because a broker does all the legwork for you, it saves you time and energy!
Saves you money
As discussed, a Brokers role is to find you the best deal along with the right product that suits your personal circumstance. If you go to a bank direct, you are locked into their products. It doesn't mean it's not fit for purpose, it's just that you have only looked at one shop, with one product. No comparison!
- Loan A may have a good rate with Big Bank Mutual, but it has restrictive terms and conditions such as termination fees or a lack of ability to pay extra.
- Loan B may have all the good terms you want, but the rate isn’t as sharp.
A Broker will ask you what you need in a loan. Or if you haven't got a clue they will tell you the things to look for in a loan, tell you what is in the marketplace and guide you to the best fit overall to your needs.
The goal is to keep your repayments as low as possible as well as having flexible terms and policies. A broker will do that for you with access to potentially dozens of lenders all competing for your business.
Fees, charges and policies are part and parcel of a loan, and a good broker will outline the fees so you know what you are signing up for with no surprises.
Makes you smarter
Have you ever been involved in a conversation about finance and didn't understand what they were talking about? Amortisation, equity, defaults, credit scores, loan portability, fixed rates etc etc. You may have just nodded your head not understanding a word!
A good Broker in interaction with clients will give the ‘inside secrets’ and even provide you with education about how loans work, the tricks, the traps, and the best way to secure the best deal. They will answer questions you may have had for years. Brokers LOVE talking finance. Remember, they aren't selling a product, they are providing a service!
Good Brokers also have developed lots of information tools (like this one!) that can help you navigate the world of finance.
A good Broker won't talk AT you, they will put things in ways that are easily understood and are relatable to you. This is important as finance can be complex, so having a person in your corner helping you 'join the dots' is great. This will also help you in the future when you are making other financial decisions.
As a result at your next family get-together or Friday afternoon drinks, you can be the expert, or at least keep up with the conversation!
Saves you confusion, heartache and regret
We see it all the time. People who shop around for finance not understanding that the lender is putting a hit on their credit file, negatively affecting the most precious commodity when it comes to financing, the credit score.
A good Broker will never put a hit on your file until you are ready to apply. A good Broker will find out all about you and your circumstances and complete a ‘soft enquiry’ that doesn’t touch your file but just looks at your credit score to know which lender will be best suited.
Once the shine comes off the purchase, the loan is there for the long-term. Avoiding regret and buyers remorse because you didn't understand or were sold a product is so important to your long term happiness!
You get an expert
Brokers are finance specialists, they access finance for everyday people - 365 days a year.
A good Broker should know the intricacies of lenders, their nuances, policies, fees and charges and how to best approach an application. Having an expert in your corner who assists hundreds of clients every year with a specialist skillset will give you an advantage in your next finance decision.
It can also prevent mistakes and make the overall buying process of a new or second-hand car, boat, caravan or motorbike far more enjoyable.
You are getting impartial advice
Brokers are governed by legislation that dictates their behaviours. A good Broker (notwithstanding the law) will have your best interests as their North Star. They work for you.
The difference between a Broker and banks is bank staff are simply selling you their product. They can’t then go and provide you a comparison to a competitor because they work for Big Bank Mutual. A good Broker will not be impartial to one lender, they will hunt the best deal from the multiple lenders they have access to. Again, good Brokers do not sell ‘products’, they sell service.
You get a real person
Brokers are usually not huge corporations. Most good Brokers are small business owners and are driven by good customer service and creating long term relationships with their customers.
Everyone has heard the adage banks tend to treat customers like numbers. People don't like being treated like a number. They want to be treated like a person. A good Broker will be the person you deal with all the way through the process and into the future and actually care about your financial well being.
Final thoughts
We’ve come up with this list, and there are many more reasons to use a good Broker like Journey Finance. To truly understand how a good Broker can benefit you, contact us today.
Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.
Get In Touch
Locations
Melbourne
Brisbane
Sydney
Sunshine Coast
Townsville
Hours
Mon:10am - 5pm
Tue: 9am - 5pm
Wed: 9am - 5pm
Thur: 9am - 5pm
Fri: 9am - 3pm
Sat: 8am - 1pm
Sun: Closed
Why choose a Chattel Mortgage
When you first started your business, it was most likely you, a pack of business cards, a phone and a dream.
No matter where you are at in your business building efforts, you should be proud of your achievements!
A lot of small businesses start out lean. Using a personal mobile phone and their own car to drive their business to the next level.
As time goes on – customers and revenue increase, websites get more professional, maybe even a wrap on the car, the personal phone becomes a business account and the personal bank account becomes a business account.
What about business vehicle/s or cars used to conduct business? A lot of small to medium businesses still finance their cars through personal loans or dealership finance. This is more due to habit than anything and maybe not understanding there are products in the market that are designed for business. Is it the best option?
What is a Chattel Mortgage
It is a weird name, but essentially a Chattel Mortgage is finance for cars used for business purposes. The word Chattel simply means “a personal possession” and ‘mortgage’ means that the lender of the money to purchase the chattel has a mortgage or title over the property until the loan is repaid.
The lender takes a ‘mortgage’ over the vehicle as security the same way a lender or bank takes security over the car if you financed it through a secured personal loan. It is still your car, but the security is placed over the car in the event of defaulting on repayments. Once the car is paid off, you take full ownership to sell the car or continue to use it for your business.
How is it different from a car loan?
It works the same way as a normal secured car loan but customisable to what you need now and in the future.
Main points
- Use a chattel mortgage to improve your cash flow
- If you are registered for GST you may be eligible to claim the input tax credit on your next BAS
- General tax deductions and depreciation may be available for the business usage
A Chattel Mortgage…
- Generally has lower rates compared to loans through the bank or dealership
- Has GST, depreciation, and interest able to be claimed back easily
- Has flexible terms, residuals, and options to include extras
- Helps you manage your cash flow by allowing deposits or trade-ins
- Gets you into business asset finance building a credit rating for your business for future needs to continue to grow your business.
Who can take on a Chattel Mortgage?
Many different entities can take out a Chattel Mortgage on a vehicle if the car is for majority business use.
- Employees
- A sole trader
- Partnerships
- Companies
What are the main benefits?
The main benefits of having a chattel mortgage include setting a residual or balloon to reduce the monthly payments, the option or potential to claim tax deductions for business use* and claiming input tax credits if you are registered for GST
What about tax and GST?
Most business people would be using their car for business purposes so you may be eligible to claim a tax deduction against your income for the interest charges along with the ATO set depreciation. Your accountant will be the best person to speak to about what you can claim.
How does the mortgage work?
You own the vehicle, however, the financier will place a mortgage similar to a home over the vehicle as security. Set monthly repayments are made for the term and at the end, the financier will remove the mortgage. If you have set a residual, you can refinance this reserved amount, sell the car and pay out the residual or use the car as a trade and payout the residual.
Who is it suitable for?
Any business that is registered for GST as you may be able to claim the GST from the vehicle’s purchase price as an Input Tax Credit on the next BAS you complete.
** Always speak to your accountant regarding your eligibility for tax writeoffs or GST matters
Disclaimer: The thoughts and opinions conveyed on this website are those of the author/s and are of a general nature. Any information provided does not constitute financial or general advice to you from Journey Finance Australia. When considering financial or insurance products, you should seek your own independent advice from a professional.
Get In Touch
1800 861 009
Locations
Melbourne
Brisbane
Sydney
Sunshine Coast
Townsville
Hours
Mon:10am – 5pm
Tue: 9am – 5pm
Wed: 9am – 5pm
Thur: 9am – 5pm
Fri: 9am – 3pm
Sat: 8am – 1pm
Sun: Closed