Chattel Mortgage

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Chattel Mortgage Truck

A chattel mortgage is used by businesses and sole traders to finance business equipment, most often a car or commercial vehicle. The financed vehicle must be used for business purposes at least 51% of the time.

There are financial advantages to using a chattel mortgage instead of a car loan, as the borrower will gain immediate ownership of the vehicle and can be eligible for certain GST benefits.

They are commonly used by companies looking to purchase heavy vehicles - such as transport truck and trailer combos, delivery trucks, excavation machinery, and other mining equipment.

Light Vehicles Heavy Vehicles Business Machinery
  • Cars
  • Motorcycles
  • Utes
  • Vans
  • Buses
  • Caravans
  • Delivery Trucks
  • Trucks and Trailers
  • Diggers
  • Excavators
  • Forklifts
  • Mining Machinery
  • Tractors

Who uses a chattel mortgage?

Chattel mortgages are popular with sole traders and businesses. Essentially, anyone planning to use a vehicle predominantly for business purposes can apply - they are especially popular with tradies, as the vehicle can double as a personal vehicle outside its primary use for their business.

They can also be used to finance heavy vehicles and business machinery; as they are specifically designed for business vehicles, borrowers used them for a variety of purposes:

  • Tradies who wish to finance a vehicle for business use
  • Businesses financing a company car
  • Companies financing industrial vehicles or machinery

Tradies who use a chattel mortgage include:

Tradies A - H Tradies I - Z
  • Arborists
  • Builders
  • Carpenters
  • Caterers
  • Cleaners
  • Couriers
  • Electricians
  • Fencers
  • Glaziers
  • Handymen
  • HVAC technicians
  • Labourers
  • Landscapers
  • Locksmiths
  • Mobile Mechanics
  • Painters
  • Plasterers
  • Plumbers
  • Pool Servicing
  • Removalists
  • Tilers

How does a Chattel Mortgage work?

Chattel mortgages work in a similar way to other types of vehicle finance but are always secured by the vehicle and only used by businesses. They are a fixed-term, fixed-rate finance contract in a similar manner to secured car loans but used for business purposes.

A lender will approve funding for financing a business vehicle or machinery and:

  • The business will purchase the asset and gain immediate, full ownership.
  • The business will make regular repayments to the lender throughout the term.

As the business takes immediate ownership of the asset, it will also assume the business will own the vehicle and assume full responsibility for the asset’s operating expenses. Throughout the term, this can include:

  • Vehicle registration
  • Repairs, Maintenance and Servicing costs
  • Insurance for the vehicle or machinery
  • Replacement parts such as tyres

Benefits of a chattel mortgage

Balloon payments Balloon payments help reduce your regular repayments and give greater control over your tax write-offs.
Asset ownership You gain immediate ownership of the vehicle. This allows you to claim depreciation on the cost of the vehicle as a business expense.
GST benefits GST-registered businesses and sole traders can potentially claim back GST on their business activity statements (BAS).

Options at the end of your term

At the end of the term, you will have a few options available depending on whether you wish to purchase the vehicle outright or continue with another chattel mortgage agreement.

  • Refinance the balloon amount as a standard car loan and use the vehicle for personal use 100% of the time.
  • Trade the vehicle in and purchase another with a new finance agreement, and use the proceeds from the trade-in to repay the outstanding residual amount in the process.
  • Pay the residual amount and retain full ownership for continued use, or to sell the vehicle for a profit.

Balloon or ‘residual’ amounts are lump-sum payments at the end of the loan term. They are often used in chattel mortgages to reduce the regular repayments throughout the term of the loan.

Businesses may opt for a balloon payment if they wish to converse funds and commit to lower repayments in the short-term, and can be used if the business has either no intention of owning the vehicle outright at the end of the term or will plan to trade in the asset and refinance a new vehicle.

Keep in mind that any residual amount at the end of the term is not tax-deductible.

Chattel Mortgage lenders

You can apply for a chattel mortgage with a number of different lenders, including banks and specialist business finance lenders. You may also choose to engage a finance broker to assist in preparing your application and finding the most competitive rate.

The fastest approval speed will be offered by specialist lenders. Often, you can apply online and receive approval and finance within 24 hours. These lenders also offer a streamlined method of applying; the majority will allow you to apply using a simple, online application form.

Lender approval criteria

Regardless of who you apply with, there are some standard finance criteria you will need to meet, such as having:

  • An ABN and GST registration
  • An acceptable credit rating
  • A minimum level of turnover
  • A maximum level of other debt

If you’re buying a vehicle to the value of $150,000, most lenders will provide finance options if you have been operating your business for 12 months and have a clean credit history.

To finance a vehicle greater than $150,000, or if you have been operating as a tradie for less than 12 months, you’ll need to provide a greater amount of supporting documentation to satisfy lender approval criteria. You may need to provide:

  • Profit and Loss Statements and Balance Sheet
  • Business bank statements
  • Rates notice - for homeowners
  • Rental agreement - for renters

You will be asked to supply this additional documentation so that a lender is able to accurately assess your level of risk as a borrower, and whether you are capable of comfortably meeting repayments on the amount you apply for.

Chattel Mortgage GST benefits

Using a chattel mortgage, a business can claim the GST on the initial purchase price of the vehicle as an input tax credit on its next Business Activity Statement (BAS). There is a limit to how much GST you can claim on a vehicle, which is set each year by the Australian Tax Office.

  • The maximum amount of GST you can claim on an asset is 1/11th of the cost limit set each year by the ATO.
  • The cost limit includes both GST and depreciation, and for 2020 is set at $57,581.
  • The maximum amount of GST you can currently claim on a vehicle is $5,234.

To qualify for GST benefits, your business is registered for GST on a cash basis and records income and expenses as they occur. Here’s how it works:

  • The business is registered for GST and operates on a cash basis
  • A lender approves a chattel mortgage and the business takes ownership of the vehicle
  • The vehicle or machinery qualifies as an asset purchase on the balance sheet for business
  • The GST of the asset’s initial purchase price is claimed back on the next BAS

A business can also claim depreciation on the vehicle in its end-of-year tax return, and all interest paid is also tax-deductible. To ensure your business qualifies to make these deductions, you will need to first confirm your eligibility with your business account or financial advisor.

Chattel Mortgage Details

Borrowing amounts

The minimum amount you can borrow using a chattel mortgage will be between $5,000 and $10,000. The maximum amount you can borrow will vary; most lenders will provide options for vehicles up to $150,000, while specialist lenders can approve greater amounts when financing high-value machinery.

It’s also possible to borrow more than 100 per cent of the vehicle’s up-front cost, which means you can include any associated costs, such as vehicle vinyl wraps and registration. If you’re acquiring a vehicle as a tradie, you can include personal branding in your loan amount.


Terms for a chattel mortgage are often flexible to suit the business. Most lenders will allow you to apply for a term of between two and five years, though keep in mind the shorter your term, the higher any residual amount will be at the end.


If you work with a finance broker, you can expect to pay broker fees on your application. There may also be establishment fees applied by the lender when finalising your agreement, and monthly management fees ranging anywhere from $10 to $50 per month.

Borrowing Limits $5,000 - $150,000 +
Terms 2 years - 5 years
Application Fees $0 - $500
Monthly Fees Up to $50 per month
Interest Rates 4.79% - 8.49%


Chattel mortgages are used to finance vehicles and assets, are always secured by the vehicle, and only used by businesses. They are a fixed-term, fixed-rate finance contract, and the financed vehicle must be used for business purposes at least 51% of the time.


  • Allows a business to finance a vehicle if it is used for business purposes 51% of the time
  • Uses the financed vehicle as security
  • Allows the borrower to claim back the purchase-price GST on their BAS
  • Full ownership of the vehicle purchased
  • Is generally set between 2 - 5 years
  • The fastest approval speed will be offered by specialist lenders
  • Can include a residual amount to reduce regular repayment amounts

Pros & Cons

Pros Cons
  • Generally has lower rates and fees than other forms of vehicle finance
  • May include a balloon payment to lower monthly repayment costs
  • Allows the business to benefit from ownership of the vehicle immediately
  • May include early repayment or termination fees
  • Accounting work involved in claiming GST and deductions
  • You can’t sell or dispose of the asset during the term
  • Any residual balance (balloon) is not tax-deductible

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