Quick answer
Think of a chattel mortgage as finance for a movable business asset such as a ute, truck or excavator. Title sits with your business as soon as the deal settles, while the lender registers an interest over the item on the PPSR that is lifted once the debt is cleared. Repayments may finish with a lump-sum balloon. Businesses registered for GST often like this structure, since holding title straight away affects their tax claims, which an accountant should confirm.
Key points
- Title is yours at settlement, with the lender registered on the PPSR.
- Commonly used for cars, trucks, machinery and equipment.
- An end-of-term lump sum lowers each instalment but must be planned for.
- Tax and GST effects differ between businesses; your accountant decides.
At a glance
- Ownership
- Your business holds title once the deal settles
- Security
- PPSR registration over the item being bought
- Typical assets
- Utes, vans, prime movers, trailers, plant and cars
- End of term
- PPSR interest removed after the final payment clears
Our review: chattel mortgage at a glance
What works well
- Title in the business name at settlement
- No need to offer your home or other real estate
- Set instalments are easy to plan around
- An optional lump sum at the end trims each instalment
What to watch
- Fall behind and the lender may take the item back
- Any lump sum still has to be cleared or refinanced later
- If resale values drop, that loss is yours
- Paying out ahead of schedule may cost extra
Usually suits
- Businesses registered for GST that are purchasing plant or vehicles
- Operators planning to run the item for many years
- Anyone who wants the same instalment every period
Probably look elsewhere if
- You plan to swap to newer gear every couple of years
- The item will mainly be used outside the business
- The lump sum would be more than the item will fetch later
Lawyers have long used the word chattel for property you can move, as distinct from land. So a chattel mortgage is a loan secured over something movable: a ute, a forklift, an espresso machine, a prime mover. Australian businesses use it constantly, mostly because it is straightforward and the item is in the business’s name as soon as the purchase settles.
Step by step
After you choose the item, the lender settles with the dealer or private seller. Title goes to your business at that point, and the lender lodges a registration on the Personal Property Securities Register to protect its position. Instalments then run for the agreed number of months, sometimes ending with a lump sum. When the last dollar is paid, the registration comes off and nothing is left owing.
Because the lender can fall back on the item itself, this kind of finance is normally easier to obtain and cheaper than borrowing unsecured. Miss enough payments and the lender is entitled to repossess and sell it to recoup the debt.
The GST angle
Holding title from settlement has tax consequences. For a business registered for GST, a credit on the purchase may be available through the activity statement, and depreciation and interest deductions may follow, all scaled to how much the item is used for work and the business’s own circumstances. Leasing works under different rules. These are tax questions rather than lending questions, and the answer depends on your structure, so ask your accountant. For the general rules, start with the ATO’s GST pages.
Term and balloon choices
| Choice | What it does |
|---|---|
| Shorter term | Bigger repayments, less interest overall, owned outright sooner |
| Longer term | Smaller repayments, higher total cost, chance of owing more than the asset is worth |
| No lump sum | Largest instalments, debt fully cleared by the last one |
| Lump sum at the end | Lighter instalments, then one bigger payment to fund |
A sensible ceiling for any lump sum is the price the item could realistically fetch when the contract finishes. Set it higher and you may be left topping up the difference in cash or through new finance. Our guide to balloon payments explains the trade-offs.
Chattel mortgage or lease?
If the plan is to run the item until it is worn out, this structure usually fits. If you would rather use it for a few years and then return it or move to newer gear, leasing is often the more natural choice. Our equipment leasing review compares finance and operating leases, and the equipment finance overview lines up every structure.
Before you sign, check
- The sum of every repayment, the balloon and all fees.
- Any limits on modifying, relocating or selling the asset.
- Insurance terms; most lenders want comprehensive cover with their interest noted.
- What it costs to pay the loan out early.
- What happens if the asset is stolen or written off.
Buying a car or ute? Our business car loans review covers the extra points for vehicles.
An illustrative example
Imagine a fictional landscaping crew on the Sunshine Coast buying a used skid steer and trailer from a dealer. The owner intends to keep both for years, is registered for GST and uses them only for work. A four-year chattel mortgage with a modest deposit and no balloon keeps repayments comfortably below what the extra jobs will bring in.
Title is in the business name from settlement, so the accountant works through the GST and depreciation position for this particular operator. Four years later the last instalment clears, the PPSR entry is removed and the skid steer is unencumbered.
Had the owner wanted a new machine every two years, a lease might have been the better choice. It comes down to how long the asset will be kept and how the business prefers to handle tax.
Mistakes to avoid
- Picking a lump sum larger than the item will be worth when the contract ends.
- Running the loan far beyond the asset’s useful life.
- Forgetting the insurance needs to note the lender’s interest.
- Selling or trading in the asset before the loan is paid out.
- Assuming a tax outcome without asking your accountant.
Thinking about a chattel mortgage?
If you are buying a vehicle or equipment for the business and want title held by the business, this structure deserves a close look. To see what could work, make one enquiry. Your first enquiry involves no credit check, a real person reads it and your details go to one lending partner rather than a crowd. Let us know what the asset is, roughly what it costs and whether it is new or used, and mention any balloon you have in mind in your enquiry.
Frequently asked questions
Who owns the asset in a chattel mortgage?
Your business holds title once the purchase settles. The lender protects itself by registering an interest on the Personal Property Securities Register, and that registration lets it repossess the item if repayments are not kept up. It is removed when the debt is cleared.
Can I claim GST on a chattel mortgage purchase?
Possibly. Because title sits with the business, a GST-registered buyer may be entitled to a credit on its activity statement, scaled to business use and subject to the usual rules. Ask your accountant before relying on it.
Can I have a chattel mortgage on a used vehicle?
Yes. Second-hand vehicles and equipment are financed this way all the time, though lenders will look at the age and condition of the asset and whether you are buying from a dealer or privately.
What happens at the end of a chattel mortgage?
When the final instalment, plus any lump sum, has cleared, the lender removes its PPSR registration. Nothing further is owed and the item is unencumbered.
Sources and further reading
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