If your company is thinking about buying a new vehicle which will be used for your business operation, a chattel mortgage could be suitable.
When you’re in need of funds to buy vehicle to be used solely for your business operations you can get a chattel mortgage. You’ll be surprised to find out that this chattel mortgage can give you the added benefit of really taking the ownership of the vehicle.
You’ll see that it has the best feature of having the best rates and tax incentives. You can use the vehicle immediately without worrying about obtaining a car loan.
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- Minimum Loan Term: 1 year
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- Minimum Loan Amount: $2,000
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What is a chattel mortgage?
A chattel mortgage is a loan facility offered by lending institutions specifically used for buying vehicle. If you take this loan you’re called the mortgagee who will assume the legal ownership of the vehicle. While the lender or a mortgagor will take over the vehicle as security.
It merges the features of a loan and a lease which will give you the best rates and tax incentives. You’ll also find of its added benefit of actually taking the ownership of the vehicle without the nuisance of getting the actual loan.
How does a chattel mortgage work?
When you’ll take a chattel mortgage your lender will give you money in advance for you to buy equipment. You’ll take the ownership of the equipment at the moment of your purchase. The lender will take a mortgage over the equipment as security for the loan by registering the lender’s interest over it with the Personal Property Securities Register (PPSR).
In getting for a chattel mortgage you go to lending firms and select the product you plan to get. Then you prepare the requirements and paperwork and submit this to the lender, and if there’ll be no problem your loan is approved. In order to manage your loan some few things you should look at such as interest rate, hidden fees and charges.
What are the features?
- Loan facility for business use only. The purchase of the vehicle can only be for business purposes without capital outlay.
- Tax deductible. You can claim depreciation, running costs and interest payment to be deducted in your tax payment. You can also claim the full input tax credit from GST-incurred expenses.
- Vehicle ownership. When you’re finished paying of the chattel mortgage agreement, you’ll get hold of the full ownership of the vehicle.
- Fixed interest rate. You’ll be assured that you’ll be paying the agreed amount for the loan because it has fixed interest rate.
Tax benefits of a chattel mortgage
One of the main benefits that the chattel mortgage can give you is its loan feature which let you’ll own the vehicle at the time of purchase. The lender is giving you the full loan amount to cover total cost of the equipment.
When you take chattel mortgage you’ll benefit fully when you’re presently registered for GST on a cash accounting basis. This feature permits you to take the GST of the buying price of your new vehicle as an Input Tax Credit on the Business Activity Statement (BAS). Also the GST is only charged on the actual buying price and not on the monthly repayments.
On top of it all you can claim a tax deduction on interest charges and the vehicle’s depreciation. You should be aware that depreciation claim has limit and in order to make this claim valid you’ve to prove it with supporting documents.
Additional benefits of a chattel mortgage
Some of the additional benefits of opting for a chattel mortgage are as follows.
- No capital outlay. As a borrower you’ll not shell out money for the purchase as the lender will provide it through chattel mortgage.
- Flexible terms. You’ll get flexible terms and pre-calculated fixed repayments with this loan which will make it easy for you to manage your budget.
- Full ownership transfer. When you’ll make the final payment of your chattel mortgage agreement, the full ownership of the vehicle will be transferred to you.
- Residual value application. You can use the residual value (balloon) to be applied to the contract which will let you make the monthly repayments tailored-fit to your budget.
And the additional people who’ll be benefited are those who are sole traders, partnership and companies which are using the cash method for accounting.
Other types of business car loans
Some of the few types of business car loans which will suit to your needs are as follows.
- Commercial hire purchase. This is one type where a company leases or hires a car for a certain time frame, and pays a fixed monthly payment to the car’s use.
- Finance lease. This type of car loan lets a business to use a car as a commercial vehicle and enjoying its car ownership, while the lending company owns the actual car.
- Novated lease. This type isn’t technically a form of business car loan, but more a salary sacrificing method for employees. This is best for tax shield purposes for both the employer and the employees.
A chattel mortgage is a type of loan for buying a vehicle for the purpose of mainly using it for business operations. The set up lets you own the vehicle while the lender takes over the vehicle as security.
In getting a chattel mortgage you should use your option of getting the best offer from a range of lending institutions by comparing them online.