When faced with various loan options for acquiring trucks, many business owners might question the meaning of "Chattel Mortgage." While the term "mortgage" is commonly associated with home loans, its relevance extends to heavy vehicle purchases. As experts in the truck finance field, we frequently encounter this question and are glad to offer a straightforward explanation.
Selecting the right truck finance product is a crucial decision when making substantial investments like acquiring new heavy vehicles. Understanding the distinctions of each loan type and how they align with the business's structure and objectives is essential for making an informed choice.
The definition of Chattel Mortgage is quite straightforward. "Chattel" refers to the goods being obtained, in this case, the truck, and "mortgage" represents the loan itself. To simplify the understanding of Chattel Mortgage and reduce confusion, some banks now use terms like "Truck Loan" or "Equipment Loan" to describe this form of finance.
Chattel Mortgage Truck Finance – Key Features
Confusing term but quite simple and straightforward in regard to the workings of a Chattel Mortgage or Heavy Vehicle Loan, How Chattel Truck Mortgage Loan Works is worth exploring to gain a clear understanding:-
- Essentially a secured loan format.
- Lender accepts the truck as the guarantee or security against the finance.
- Suited to business that implement the cash accounting method.
- Ownership transfers immediately to the business. This means that the truck is posted as an asset/liability to the business balance sheet.
- As a depreciable asset the value of the truck is depreciated in accordance with the ATO rulings. These rulings can vary when special tax measures are introduced.
- As the truck is subject to depreciation as a tax deduction, the portion of the repayments of the capital are not tax deductible.
- The interest component of the finance repayments is a tax deduction.
- The full amount of the GST which is applied to the truck purchase can be claimed on the next BAS return.
- A balloon is an optional inclusion. This is a percentage of the original loan amount (typically the purchase price) which is set aside for payment at the end of the finance term.
- When the balloon payment is due, Jade Truck Loans may be able to assist with refinancing this amount into a new loan.
- Suits most business set-ups including family enterprises, partnerships, SMEs and large corporations.
- Low Doc, No Doc Truck financing and leasing and Credit Issue Truck Loans can be secured with Chattel Mortgage finance.
- Suitable for all truck types – heavy, medium and light duty, all major brands.
While Chattel Mortgage presents attractive benefits, the decision around its suitability for an individual business should be discussed with the business accountant. The benefits should be compared with other loan options such as Truck Leasing and Rent-to-Own.
Chattel Mortgage Interest Rate
Chattel Mortgage typically attracts cheaper truck interest rate of all the options for truck finance. This reflects the secured loan format. Rates do vary across the lending market and operators can be savvy in engaging our broker-style services to secure the cheapest available from our vast lending panel.
Businesses with a good credit rating are typically offered the best interest rates across all forms of truck finance. Rates advertised will, unless otherwise indicated by a lender, apply to purchases of new vehicles. Interest rates on finance for second hand and used truck may attract a higher rate. Having said that, your Jade consultant will always be working hard to achieve the cheapest rate regardless of the age and condition of the truck.
Current Chattel Mortgage Tax Benefits
As mentioned above, with Chattel Mortgage, the truck becomes a depreciable asset and as such subject to the ATO’s depreciation schedule. Currently temporary full expensing is available as an accelerated asset depreciation measure for a limited time.
It was put in place in April 2020 as Instant Asset Write-Off and amended to its current form. The appeal of this measure is allowing the full value or purchase price of the truck to be deducted as a tax benefit in the same year that the truck was purchased.
Under normal depreciation rules it would take several years for the full value to be depreciated. By opting for this larger tax deduction, business can reduce their taxable income and as such realise a savings on the tax which is due.
The current measure is in place until 30 June 2023 for eligible asset acquisitions by businesses that meet the eligibility criteria.
Achieving Workable Chattel Mortgage Truck Finance
While many lenders offer Chattel Mortgage, the interest rates will vary across the market. Jade Truck Loans can provide business owners with the distinct advantage of access to an extensive selection of lenders including specialist, heavy-vehicle non-bank lenders.
With the RBA set to raise rates again and possibly several times this year, securing the cheapest available rate has soared in significance. Our vast choice allows our consultants to quickly cover off on the options to source and negotiate the cheapest interest rate for each of our customers.
The finance term can also determine the cost-effectiveness of a Chattel Mortgage. Jade Truck Loans offers up to 7 year terms to ensure repayments are workable with cash flow. No deposit Chattel Mortgage is available so the complete purchase price including rego and on-road costs can be included in the loan. Fixed interest rates and fixed terms are available which deliver fixed monthly repayments.
When acquiring both a truck and a trailer, it's possible to consolidate the combined cost into a single finance deal. This approach can help manage cash flow more effectively and simplify accounting processes.
Feel free to contact us if you need further clarification about Chattel Mortgage or if you'd like to request a quote for your upcoming truck and trailer purchase. Our team is here to assist you in making informed decisions and securing the right financing solution for your needs.
Contact Jade Truck Loans on 1300 000 003 to discuss affordable Chattel Mortgage truck finance.
DISCLAIMER: THIS INFORMATION IS ISSUED PURELY FOR THE PURPOSE OF GENERAL INFORMATION PROVISION. IT IS NOT TO BE TAKEN AS THE ONLY SOURCE OF INFORMATION FOR BASING FINANCIAL DECISION-MAKING. THOSE REQUIRING FINANCIAL GUIDANCE AND ADVICE SHOULD CONSULT WITH THEIR FINANCIAL CONSULTANT OR ADVISOR. NO LIABILITY IS ACCEPTED FOR ANY MISREPRESENTATION OF POLICIES, DATA OR ERRORS IN THIS CONTENT.
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