How Do Chattel Mortgage Payments Work?

The following is a guest post. Enjoy! 

Buying a car is almost essential for living anywhere in Australia except the most central of urban dwellers. But cars these days are expensive, and budgets are tight. One consideration is the chattel mortgage, which may be the perfect option for your next car purchase. It’s also known as an equipment loan or a bill of sale.


What is a chattel mortgage?

You might be used to hearing the term ‘mortgage’ in relation to homes. But in this case, the same idea is applied to a car. Instead of having a loan out for the car, a bank or financier gives you the funds in full to purchase the car. Then the bank creates a mortgage on the car itself, in this case called a “chattel” (which is just an old English word for ‘property’). The specifics of the agreement depend on the contract; in some cases legal ownership is with the bank, and in others it is with the purchaser.

The terms of the mortgage will state that should the purchaser default on their payments, the bank can take back ownership of the chattel. And just like in a normal mortgage, when the payments have been made in full, the car owner is free and clear and can trade the car in for another or sell the car.


Why should you get a chattel mortgage?

Chattel mortgages are often used by business owners, as the Goods & Service Tax (GST) can be claimed up front, and then as the loan repayments are made, interest payments can also be deducted, so there’s a significant tax benefit there. Other benefits of a chattel mortgage include:

  • Monthly payments are fixed
  • Lower interest rates
  • More flexible terms of contract (loans range from less than 12 months, up to five years)
  • Overall costs can be reduced with a trade-in or down payment

In general, you have a better idea up-front of all your costs and fees with a chattel mortgage, as opposed to other lending methods.

When considering the chattel mortgage option, it is good to speak with not only your bank but your accountant to understand how the costs will break down, since you wouldn’t be able to switch to a different kind of loan after-the-fact. Some banks and financiers have online calculators you can use.

How about you all? Have you ever heard of and/or used a chattel mortgage payment to purchase a vehicle? 

Share your experiences by commenting below! 

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