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.

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