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CHATTEL MORTGAGE

Chattel mortgage explained

The common structure when a business buys a vehicle or a piece of plant. You take title at settlement. The financier takes a mortgage over the asset until the loan is paid out.

Talk through the structure1300 015 267
Business owners and their accountant reviewing how a purchase should be structured

  • Title

    Yours from settlement

  • Security

    Mortgage over the asset

  • GST & depreciation

    Your accountant’s call

  • Lender panel

    40+

Is this you?

If any of these are true, we can help.

Talk it through
  • A business buying a ute, van or truck it intends to own outright at the end
  • A contractor buying plant where the accountant has asked for the asset to sit on the balance sheet
  • An operator who has been offered a lease and wants to understand the alternative before signing
  • A buyer who wants to understand what a balloon really commits them to
  • A business comparing a chattel mortgage against a rental agreement on the same machine

How it works

Three moves, in plain words.

  1. 01

    Confirm the asset and the price

    A supplier quote or tax invoice, with the asset details, the year and any fit-out itemised.

  2. 02

    Confirm predominant business use

    A chattel mortgage is a commercial contract. The asset needs to be predominantly for business purposes, and that declaration needs to be accurate.

  3. 03

    Set term and balloon

    Decided against the replacement plan, not against the monthly figure. This is where most of the long-term cost is determined.

Get the structure right before you sign

Talk through the structure1300 015 267

What a chattel mortgage is

A chattel mortgage is a commercial loan used to buy a specific asset, most often a vehicle or a piece of equipment. The word chattel simply means moveable property. The structure has two halves. The financier advances the funds and you buy the asset, so title passes to you at settlement. In exchange, the financier takes a mortgage over that asset as security until the loan is repaid.

That is the distinction people miss. Under a lease, the financier owns the asset and you have the right to use it. Under a chattel mortgage, you own it from day one and the financier has a registered claim over it. Ownership and security are two different things, and here they sit with two different parties.

Where one monthly repayment goes

The repayment stays the same every month while the split inside it moves. Early in the term the interest share is at its largest, and it shrinks with every payment made. Which parts of this your business can claim is a question for your accountant, not for us.

Modelled on a $75,000 five-year chattel mortgage at an assumed rate, early in the term. Illustrative projection only. Not a quote and not an offer of credit.

View as a table
ComponentAmountShare
Principal off the loan$1,18079%
Interest$29520%
Monthly account fee$151%
Total$1,490100%

You own the asset. Someone else holds a claim over it until the last payment clears. Both things are true from the first day.

The detail

Title, security and the PPSR

The financier’s security is registered on the Personal Property Securities Register. Anyone searching the asset can see that an interest is recorded against it, which is exactly why a PPSR search matters when you are buying second hand from a private seller.

  • The asset is registered in the business name from settlement
  • The financier registers its security interest on the PPSR
  • The asset cannot be sold clear of that interest until the loan is paid out
  • On final payment or payout, the security is discharged and the registration is released
Title
Legal ownership of the asset. Under a chattel mortgage it sits with the business from settlement, which is the whole point of the structure.
Security interest
The financier’s registered claim over the asset. It does not make the financier the owner. It makes the financier the party that has to be paid before the asset can be sold clear.
PPSR registration
The public record of that interest. A buyer, an insurer or another lender can search the asset and see it.
Discharge
The release of the security once the loan is paid out. Worth confirming rather than assuming.
Payout figure
What it takes to settle the contract in full on a stated date, including any early termination costs.
Predominant business use
The test that makes a commercial contract available. Some private use is ordinary; the declared main purpose has to be genuine.

Chattel mortgage against the alternatives

The structures differ on ownership, on what happens at the end, and on how they sit in the accounts. Only the first two are our territory.

Mechanics only. The accounting and tax treatment of each is a matter for your accountant.
Chattel mortgageFinance leaseRental / operating lease
Who holds titleYou, from settlementThe financierThe financier
SecurityMortgage over the assetNot applicable, the financier owns itNot applicable
End of termPay out any balloon and own it clearPay the residual or renegotiateReturn, extend or upgrade
SuitsAssets you intend to keepA lease structure on the booksAssets replaced on a cycle
Early payoutRequest a payout figure from the financierGoverned by the lease termsGoverned by the rental terms

Chattel mortgage

  • The business takes title at settlement and appears on the registration
  • The financier holds a mortgage over the asset until the loan is paid out
  • Any balloon is paid out at the end and the asset is then owned clear
  • Whatever the asset is worth at the end belongs to the business
  • Common where the asset is intended to be kept and run

Finance lease

  • The financier holds title for the whole of the term
  • The business has the right to use the asset under the lease
  • A residual is payable at the end, or the lease is renegotiated
  • Ownership does not pass automatically when the term finishes
  • Common where a lease structure is preferred on the books

Three structures, six questions

Ownership is the fork in the road. A chattel mortgage puts the asset in the business name on day one and only carries a lump sum at the end if you chose a balloon. Both leases keep title with the financier and both end with one.

Structural mechanics only. How each is treated in your accounts and at tax time is a matter for your accountant or a registered tax agent.

View as a table
Chattel mortgageFinance leaseNovated lease
You hold title from settlementYesNoNo
Available without an employer’s agreementYesYesNo
Requires predominantly business useYesYesNo
A lump sum falls due at the end of the termSometimesYesYes
The asset is yours to keep when the term endsYesSometimesSometimes
Fringe benefits tax sits over the arrangementNoNoYes
Where the asset and the liability come to rest in the accounts
Ownership decides how the purchase appears in your accounts, which is why an accountant often has a preference before you have a quote. Asking them first is a shorter conversation than unwinding a structure later.

Balloon payments on a chattel mortgage

A balloon is a portion of the loan deferred to the end of the term. It lowers the monthly repayment and it leaves a lump sum owing on the final day. Nothing about a balloon reduces what you owe. It moves it.

  1. 01Decide what you intend to do with the asset at the end of the term, before you set the balloon
  2. 02If you intend to keep it, keep the balloon modest or take none at all
  3. 03If you intend to trade or sell, set the balloon somewhere below the likely resale value, not above it
  4. 04If you expect to refinance the balloon, understand that this is a new application on an older asset

The tax questions, and who answers them

The most searched question about chattel mortgages is the tax treatment, and it is the one question we will not answer. Because the business takes title, the GST position on the purchase price and the treatment of interest and depreciation are handled differently from a lease. How that applies to your business depends on your registration, your accounting method, the proportion of business use and the rules current at the time.

  • GST on the purchase price and when it can be claimed: your accountant or a registered tax agent
  • Depreciation and any write-off provisions available in the relevant year: your accountant
  • Deductibility of the interest component: your accountant
  • How the asset and the liability appear in the financial statements: your accountant

Applying: the sequence

  1. 01

    Confirm the asset and the price

    A supplier quote or tax invoice, with the asset details, the year and any fit-out itemised.

  2. 02

    Confirm predominant business use

    A chattel mortgage is a commercial contract. The asset needs to be predominantly for business purposes, and that declaration needs to be accurate.

  3. 03

    Set term and balloon

    Decided against the replacement plan, not against the monthly figure. This is where most of the long-term cost is determined.

  4. 04

    Assemble the file

    Entity details, ABN and GST registration, financials or low doc declarations, bank statements and director information.

  5. 05

    Placement and approval

    We take it to the lenders whose appetite matches the asset, the age and the borrower. Conditions are cleared before documents are issued.

  6. 06

    Settlement and registration

    The financier pays the supplier, the asset is registered to the business, and the security interest is registered on the PPSR.

Run the numbers

See it with your own figures.

Indicative only. Change anything — the defaults are starting points, not quotes.

The loan

The amount you are borrowing, after any deposit and before fees.

A starting assumption for you to change, not a rate we are quoting and not a lender product. What you are offered depends on the security, the lender and a full credit assessment.

Principal and interest across the whole term, with no interest-only period.

Worked out on the real period rate and the real number of repayments, so a fortnightly figure is not simply half a monthly one.

Paying it down faster

Optional. Leave it at zero to see the plain schedule. Anything above zero shortens the term and cuts the interest.

Monthly repayment

$4,108.44

$650,000 over 30 years at 6.50%, principal and interest.

Number of repayments
360 monthly repayments
Total repaid
$1,479,039
Total interest
$829,039
Interest as a share of the amount borrowed
127.5%

Where the money goes

Amount borrowed$650,000
Interest over the full term$829,039

A repayment figure is the easy part. Whether a lender will lend it, on what security and at what cost, is the part we handle. Bring the number you have landed on and we will tell you what is realistic.

Talk it through with a broker
Assumptions
  • The interest rate is a figure you typed. It is not a current rate, a comparison rate, or a lender product we are offering.
  • The rate is assumed to stay the same for the whole term. Variable rates move, and a single change resets every figure on this page.
  • Repayments are principal and interest, equal in size, made on time, with no interest-only period, no repayment holiday and no redraw.
  • Weekly and fortnightly figures are calculated on the true period rate — the annual rate divided by 12 — and on 360 repayments. They are not a monthly figure divided down.
  • Interest is calculated per repayment period. A lender accruing daily and charging monthly will land on a slightly different number.
  • Extra repayments are assumed to start with the first repayment and continue every period, and to reduce the balance immediately with no fee and no break cost.
  • No fees are included: no establishment, valuation, legal, settlement, discharge or ongoing fees, no lender's mortgage insurance and no broker fee.

Open the full calculator

Dave Pham, Head Broker at WeL'nd

“Tell me the number. I have almost certainly seen worse.”

Dave Pham · Head Broker

Talk to Dave1300 015 267

FAQ

Questions people actually ask

If yours is not here, ask it. We would rather answer the awkward one early than have you find out later.

1300 015 267
Who owns the asset under a chattel mortgage?
You do, from settlement. The business takes title and the financier registers a mortgage over the asset as security. That security is discharged when the loan is paid out. This is the main structural difference between a chattel mortgage and a lease.
Can I claim GST on a chattel mortgage?
The GST position differs from a lease because the business takes title at purchase, but whether and when you can claim depends on your GST registration, your accounting method and the business use proportion. That is a question for your accountant or a registered tax agent. We arrange the finance and explain the structure; we do not give tax advice.
Can I use a chattel mortgage for a car used partly for private trips?
A chattel mortgage is a commercial contract and the asset needs to be predominantly for business use. Some private use is normal and lenders deal with it constantly. What matters is that the declared predominant purpose is genuine, and that your accountant knows the actual split so the tax treatment is right.
What happens if I sell the asset before the term ends?
You request a payout figure from the financier and settle the loan from the sale proceeds so the security can be discharged and the buyer takes clear title. If the sale price exceeds the payout, the difference is yours. If it falls short, you cover the gap.
Is a chattel mortgage available to sole traders?
Yes, provided the asset is predominantly for business use and there is an ABN. Sole traders are assessed on the individual behind the ABN, so personal credit and property ownership carry more weight than they would for a larger entity. Low doc options exist where financials are not yet finalised.
Can I pay a chattel mortgage out early?
Generally yes. Request a payout figure from the financier, which will set out the balance and any early termination costs under the contract. Those costs vary between financiers, so it is worth asking what applies before you sign rather than discovering it at payout.
Does a chattel mortgage appear on my credit file?
A commercial facility is not reported the same way a consumer loan is, but the application, any director guarantees and the PPSR registration all leave a trail that other lenders can see. Assume any lender assessing you later will find it, because they generally do.
Can I refinance an asset I already own under a chattel mortgage?
Yes. Financing an asset the business already owns outright, sometimes called a sale and leaseback or an asset refinance, releases capital back into the business while you keep using the asset. Age, condition and resale market determine whether a lender will do it and on what terms.

Credentials

  • Credit Representative 554029
  • ABN 20 672 801 651
  • FBAA member
  • AFCA external dispute resolution

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Where we work

Get the structure right before you sign

Tell us the asset, the price and what you intend to do with it at the end of the term. We will lay out how a chattel mortgage would work for that purchase, and what to put in front of your accountant.

Or call us

1300 015 267

Monday – Friday, 09:00 to 17:30

Dave Pham, Head Broker at WeL'nd

“Tell me the number. I have almost certainly seen worse.”

Dave Pham · Head Broker

Talk to Dave1300 015 267

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