Chattel mortgages, explained properly
A chattel mortgage is the structure behind most business vehicle and equipment purchases in Australia, and it is simpler than its name. This page explains how it works, what it costs, where it beats a lease and where it does not.
What a chattel mortgage is
A chattel mortgage is a business loan secured by the asset you are buying: the "chattel" is the vehicle or machine, the "mortgage" is the lender's registered security interest over it. You own the asset from day one, it appears on your balance sheet, and the lender releases its interest when the loan is paid out. Fixed rate, fixed term, usually two to seven years.
How the repayments work
Repayments are fixed for the term, monthly, fortnightly or weekly. Two levers change the number: the term, and an optional balloon, a lump sum left owing at the end. A balloon lowers every repayment during the term but accrues interest on the balance it represents, so it suits assets you plan to trade or refinance rather than keep. As a worked example, $85,000 over five years at 10.5% p.a. with no balloon is about $420 a week; the same deal with a 30% balloon runs roughly a quarter lower per week, with $25,500 due at the end.
What rates look like
Security drives the price more than the asset does. As a working rule for commercial deals: property-backed borrowers generally price around 6% to 9% p.a., and non-property-backed deals around 9% to 13%. The property does not need to be owned outright; lenders look at equity. Beyond the rate, expect an establishment fee of a few hundred dollars and a small monthly account fee, both of which vary by lender; there is no valid reason to pay a large upfront brokerage on a standard deal.
Chattel mortgage versus lease versus hire purchase
| Chattel mortgage | Finance lease | Hire purchase | |
|---|---|---|---|
| Who owns the asset | You, from day one | The lender; you pay to use it | The lender until the final payment |
| On your balance sheet | Yes | Depends on accounting treatment | Yes, once transferred |
| End of term | Asset is yours (pay any balloon) | Return, extend or pay residual | Ownership transfers |
| Typical use | Most business vehicles and equipment | Assets you replace on a cycle | Less common today |
The GST and tax treatment differs between the three structures and depends on your situation; that part is a conversation for your accountant, not a reason to pick a structure off a webpage.
The honest disadvantages
The debt sits on your balance sheet, which matters if you are managing covenants or planning other borrowing. Fixed terms mean payout figures include a break cost if you clear it very early. And a balloon is a debt you still owe: if the asset is worth less than the balloon at the end, that gap is yours. None of these are reasons to avoid the structure; they are reasons to size the term and balloon to how long you will actually keep the asset.
Getting one
Most deals need the asset invoice, ABN and identification; low-doc approvals commonly come back in 24 to 48 hours for established businesses. New and used assets both qualify, including private sales and auctions. Work your numbers on the chattel mortgage calculator, or see the chattel mortgage finance page for how we place deals across the lender panel.
Frequently asked questions
What is a chattel mortgage in simple terms?
A business loan secured by the thing you are buying. You own the vehicle or equipment from day one, the lender registers a security interest over it, and that interest is released when the loan is paid out.
Is a chattel mortgage only for companies?
No. Sole traders, partnerships, trusts and companies can all use one, provided the asset is predominantly for business use.
What is the difference between a chattel mortgage and a lease?
Ownership. Under a chattel mortgage you own the asset from day one and borrow against it. Under a lease the lender owns the asset and you pay to use it, with a residual decision at the end.
Can I pay a chattel mortgage out early?
Yes, though fixed-rate facilities include a break cost in the payout figure, which shrinks as the term runs down. Ask for a payout quote before deciding.
Does a chattel mortgage need a deposit?
Not usually. Full-invoice finance is standard for established businesses, and a deposit is a cashflow choice. Newer ABNs may be asked for a deposit or property backing.
Price a deal in a day
Tell us the asset and the number and we will come back with the real rate and repayment from the lender panel, usually within a day.
This article is general information only and not financial, credit, or tax advice. Ventas Asset Lending is a finance broker, not a lender. Approvals are subject to lender assessment. Consider your own circumstances and speak to a qualified professional, including your accountant for any tax questions.