Finance is a competitive profession, along with the starting wage being up to six, seven figures. Some of the best can make that, on top of bonuses. However, do not be afraid of the terms. With basic knowledge, you can save money and find out why chattel mortgages suit your needs.
How do Chattel Mortgages work?
Chattel Mortgage in Australia is also known as a car loan in Australia. The financial agreement describes the financial provider giving you the funds to purchase an asset, providing you ownership when acquired. The financial provider then takes a mortgage over the asset as security. In this case, an asset is usually a form of vehicle.
Mainly For Business Purchases
This type of mortgage is best suited to use for business purchases. Companies, sole traders, ABN holders, and partnerships all would benefit from this type of loan. Generally, chattel mortgages are best suited for purchasing assets used for fifty percent or more business usage.
Interest Rates
Chattel mortgages are a type of secured loan. Furthermore, interest rates are lower compared to unsecured consumer loans. These interest rates can be either fixed or variable. Fixed rates loans are for those who prefer predictable payments. Variable-rate loans decrease or increase over time. Those who prefer variable rate loans make an educated estimate that the interest rates will decline and tend to choose variable rate loans.
Repayment Flexibility
When using a chattel mortgage, it is generally popular among businesses due to the flexibility to adjust the loan to their particular needs. Chattel mortgages have repayment plans that extend over a range of terms. Most two years, but in some circumstances can be extended to five. Repayments can be fixed at the same amount each month or be adjusted to fit your periodic cash flow conditions.
Balance Sheet
Chattel mortgages are easily a popular choice among business consumers. One of the reasons why is that you own the financed asset upfront. So it appears as an asset on your balance sheet and shows as a liability. Overall, this can be particularly useful to impress other parties who want to be a part of your company when they see the assets you own.
Balloon Payment
Sometimes called a residual or balloon payment, this is a sum owed at the end of a loan term. Best suited to lower your monthly repayments. In exchange, you owe the lender a bulk sum at the end of your agreement. Balloon payments can help reduce repayments and save money. However, be reminded that the higher the balloon payment will increase the interest over the loan duration.
Cash Flow
Have you ever been on a diet? A lot of fitness specialists say the core basics of losing weight are calories in and calories out. This example is very similar to what cash flow is. When you run a business, you need to keep track of assets your funds cover and where you are making income. When you take out a chattel mortgage, you are not spending a large sum at once. You are spending a monthly payment, which you can regularly pay back through the profit of the asset you received.
No Capital Outlay
When obtaining a Chattel Mortgage, one of the benefits is no/minimal capital outlay. You do not pay for the maintenance, upgrades, or repairs. When using a chattel mortgage, the only thing you pay for is the security of the capital asset. With that said, the capital that you have is available for other items your company needs.
Inclusions
When agreeing, it is possible to include government expenses, insurance incentives, and accessories as part of the loan. Your monthly repayment covers all of this.
Tax Benefits
When on a chattel mortgage, the principle of the finance repayment may qualify you for a tax deduction. A simple translation is if your asset is used mainly for business purposes, you pass the requirements for the tax credit. A chattel mortgage is under the goods and services tax.
Furthermore, the inclusive purchase price of the car or equipment is funded. To elaborate, this allows you to claim an input tax credit up-front. To add, you may also be entitled to depreciation and interest costs. The tax deduction is dependent on the mileage used for business. Tax credit benefits Australian Business Number (ABN) holders.
Flexibility
All in all, chattel mortgages are a beneficial finance option for self-employed or small business owners. There’s a lot of flexibility around repayment. An instance is you could put a deposit down or trade in your old vehicle for the asset.
With any financial agreement, it is crucial to compare more than the interest rates. Some of these considerations are vehicle production life, cash flow expectations, additional fees, and the like.
About the Author:
Raymond James
Ray is a sought after thought leader and an expert in financial and money management. He has been published and featured in over 50 leading sites and aims to contribute articles to help novice financial planners. One of his goals is to impart his knowledge in finance to educate and help ordinary people create and achieve their financial goals.
Interesting related article: “What is Autofinancing?“
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