When purchasing new vehicles, buyers have a choice of several forms of business vehicle finance from which to select. So it’s not surprising that one of the most commonly asked questions of vehicle finance lenders is what is the most popular type of loan? Businesses are often interested in what other buyers are doing in order to make their own decision around which finance product to select for their purchase.
As a broker-style lender, it is not the role of Jade Car Loans to advise business owners on loan choice. That is the role of the accountant or financial advisor as they are across the individual financial goals and accounting practices of the business. But we are across all aspects of motor vehicle finance and can advise the details of the loans available and source the cheapest offer.
The types of loans available for business vehicle purchases are Vehicle Lease, Hire Purchase or Commercial Hire Purchase and Chattel Mortgage. Of these three options, Chattel Mortgage, also referred to as sole trader car financing, is by far, currently, the most widely-used loan type.
Chattel Mortgage is a popular business vehicle finance due partly to the interest rate, secured loan format and accelerated current asset depreciation measures. It is also due to the suitability of this type of finance for the cash accounting method. Many businesses in Australia use the cash method rather than the accruals methods.
Chattel Mortgage Specifics
Chattel Mortgage has quite a straightforward loan format - chattel refers to the goods and mortgage means loan. Some banks and lenders may refer to this simply as Business Vehicle Loan or Equipment Loan.
It is a secured loan format which most people will be familiar. The vehicle being purchase is used as security against the loan and for most buyers, no other guarantee is required to secure a Chattel Mortgage.
The buyer takes ownership and possession of the vehicle from the point of purchase/finalisation of the finance contract and is responsible for all maintenance, insurance, registration and ongoing running expenses.
Jade Car Loans arranges Chattel Mortgage with a fixed interest rate and over a fixed finance term to result in a fixed repayment.
A balloon can be included as an option. This is a percentage of the purchase price which is held over for payment at the conclusion of the loan term. Varying the size of the balloon can assist buyers to achieve their target monthly repayment, subject to lender approval.
Lowest Interest Rates an Attractive Prospect
Due to the structure as a secured loan, the interest rate on Chattel Mortgage car finance is lower than the other popular loan type, Leasing. This interest rate is sure to be an aspect which attracts buyers to this form of finance. But the full compilation of features and benefits of each loan type should be considered by buyers in the context of their own business goals.
To calculate repayment estimates on the vehicle you are considering with a Chattel Mortgage, use our easy business car loan calculator.
Tax Deduction Benefits
With Chattel Mortgage the GST on the purchase of the vehicle is claimed on the next BAS return, for businesses that are registered for GST. If a business faces a significant monthly, quarterly or annual BAS payment, having the full amount of GST on a new vehicle may be very handy to reduce that commitment. GST is not applied to the interest on the loan.
Unlike Lease where the repayments are a tax deduction, the full amount of the Chattel Mortgage monthly repayment is not tax-deductible. The interest portion is, but not the remaining part of the payment.
The main tax benefit of Chattel Mortgage is realised through the depreciation of the vehicle as a business asset. In taking possession and ownership of the vehicle, it is posted as an asset/liability into the balance sheet of the business. Assets are depreciated annually in line with tax schedules.
Depreciation schedules are set to a specific percentage of the value of the asset per annum. The depreciation amount is entered as a business deduction when the business accountant produces the annual accounts and tax return.
Current Accelerated Asset Depreciation Measures
Even more buyers have been drawn to Chattel Mortgage since the introduction of the accelerated asset depreciation measures by the Federal Government. First it was Instant Asset Write-off and then the updated/amended version - temporary full expensing.
For eligible businesses and eligible assets, this measure allows for the full purchase price of new assets to be fully depreciated and tax deduction realised in the same year as purchase. So instead of having to wait several years to realise the tax deduction through incremental depreciation, the entire purchase price may be deducted in the one year.
This measure is available through to June 2023 and has become a very popular incentive for businesses to upgrade their vehicles.
Suitability to Many Vehicles and Businesses
Chattel Mortgage is a flexible form of finance which suits all types of business vehicles and many different types of businesses. SMEs, large operations, partnerships, owner-operators and sole traders can all apply for Chattel Mortgage to purchase their business vehicles.
If Chattel Mortgage is your choice of loan type, contact us for a cheap interest rate quote to ensure the vehicle purchase is affordable, cost-effective and will work for your operation.
Contact Jade Car Loans on 1300 000 003 for a Chattel Mortgage quote.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.