Chattel Mortgage

Do I fully own the car during the loan term of a chattel mortgage, or does the lender have some control over it?

With a chattel mortgage, you own the vehicle from the moment of purchase. However, the lender places a mortgage over the car as security for the loan. This means that while you have full use of the vehicle, the lender retains an interest in it until the loan is fully repaid.

What happens if I can’t keep up with the chattel mortgage repayments? Can the lender take the car away?

If you fall behind on your repayments, the lender has the right to repossess the vehicle to recover the outstanding debt. It's crucial to communicate with your lender if you're experiencing financial difficulties, as they may offer solutions to help you manage your repayments.

Am I eligible to claim GST on the vehicle’s purchase price, and how does that work?

If your business is registered for GST, you can claim the GST included in the vehicle's purchase price as an input tax credit on your next Business Activity Statement. This applies regardless of whether you account for GST on a cash or accrual basis. However, GST is not applicable to the loan repayments themselves.

Can I deduct the interest repayments for a chattel mortgage, and how do I calculate the business-use portion?

Yes, if the vehicle is used for business purposes, you can claim tax deductions for both the interest on the loan and the vehicle's depreciation. To determine the deductible amount, calculate the percentage of the vehicle's use that is for business. For example, if you use the vehicle 70% of the time for business, you can deduct 70% of the interest and depreciation expenses. It's advisable to maintain accurate records of business and personal use to substantiate your claims.

What if the car’s value drops faster than expected? Will I owe more than it’s worth?

If the vehicle's value depreciates more quickly than anticipated, it's possible that the outstanding loan balance could exceed the car's market value. This situation, known as being "upside-down" on the loan, means you would owe more than the vehicle is worth. To mitigate this risk, consider making a larger down payment or opting for a shorter loan term to build equity faster.

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How do I prepare for the balloon payment at the end of the loan? What if I can’t afford it?

A balloon payment is a lump sum due at the end of the loan term. To prepare, it's important to plan ahead by setting aside funds regularly to cover this amount. If you're concerned about affording the balloon payment, discuss options with your lender, such as refinancing the balloon amount into a new loan or adjusting the loan structure to reduce the balloon payment.

Do I have to use the car mainly for business purposes, or can I use it for personal trips too?

A chattel mortgage is designed for assets used predominantly for business purposes. This generally means the vehicle should be used more than 50% of the time for business activities. Personal use is allowed, but it's important to maintain records of how the vehicle is used to accurately claim tax deductions and ensure compliance with the terms of your financing.

Does Credit One also provide chattel mortgages for business equipment?

Yes, we offer chattel mortgages not only for vehicles but also for a wide range of business equipment. This financing solution can help your business acquire necessary assets while managing cash flow effectively. Our team is ready to assist you in finding the right financing options tailored to your business needs.

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