Chattel mortgage interest rates in Australia are fixed between 5%-10% p.a. The rate applied to your loan will depend on your business risk profile and the type of asset (vehicle or equipment) you want to finance.
Key points about chattel mortgage interest rates
- Chattel mortgage interest rates are lower than unsecured car loans
- The lowest rates are typically offered to established businesses with a good credit record and stable income
- Chattel mortgage rates are lower for brand-new vehicles and machinery, but higher on used vehicles and secondhand machinery
- Break fees may apply if you repay your chattel mortgage early
How are chattel mortgage interest rates calculated?
Chattel mortgage interest rates are calculated based on your business risk profile and creditworthiness. The lower the risk for the lender, the lower your rate as a borrower. Here’s what lenders will consider when assessing your application and calculating your rate:
- Your loan amount & term
- The type and age of the asset you’re financing
- Your credit history
- Your business history
- Your business revenue (including sole traders)
- Any deposit you may provide
- Your balloon payment at the end of the term
Interest rates on a chattel mortgage are usually fixed for the term of the loan (2-5 years). This gives you certainty over repayment costs. Repayments can be fixed at the same amount each month or can be structured to fit your cashflow requirements. According to Lend proprietary data, the median loan amount for a chattel mortgage is $50,000.
A chattel mortgage works like a secured car loan, which means the vehicle or asset (known as the chattel) you purchase will serve as collateral for the loan. This reduces the risk to the lender and therefore your rate.
Compare chattel mortgage interest rates in Australia
To compare interest rates on a chattel mortgage, you’ll need to consider whether the rate is fixed or variable, and then look at any additional fees to determine the comparison rate. A comparison rate includes the interest rate, fees, and charges on the loan.
Why is it important? The lowest advertised rate may not be the cheapest once fees are added into your loan cost calculation. In fact, a higher-rate loan with no fees can sometimes be a better deal overall. Here’s a prime example of this below.
|Chattel mortgage 1||Chattel mortgage 2|
|Loan amount ||$50,000||$50,000|
|Advertised rate (fixed)||7% p.a.||7.5% p.a.|
|Establishment fee ||$950||$450|
|Loan term||5 years ||5 years |
|Comparison rate ||8.021%||7.882%|
|Total cost of the loan||$60,654||$60,564|
|Total interest paid||$9,404||$10,114|
|Total fees paid||$1,250||$450|
Which chattel mortgage is cheaper? Chattel mortgage 2 is the cheapest option despite having a higher advertised rate than Chattel mortgage 1, because it has lower upfront and monthly fees. The comparison rate reflects the true cost of the loan.
Do fees impact interest rates and repayments on a chattel mortgage?
Your chattel mortgage fees are not included in your interest rate calculation but will impact the overall cost of your finance. Most chattel mortgages have an establishment fee, and some may have a monthly admin fee.
Be aware that some lenders may charge break fees if you decide to pay your chattel mortgage early. This allows the lender to reclaim some of the interest they would have gained throughout the term. In this instance, the penalties applied when repaying early void the benefits you’d receive from initial lower rates. It may even make sense to apply for another form of vehicle finance, such as a secured car loan with no termination fee, or a hire purchase or finance lease.
Be sure to check with your lender to see what fees they will apply and whether this will affect the total amount you pay over the term — especially if you plan to repay the loan amount early.
Does the balloon payment reduce your interest rate?
A balloon payment (the lump sum due at the end of the loan term) doesn’t reduce the interest rate on your chattel mortgage. It reduces your scheduled repayments in exchange for a larger final payment at the end of the loan term (that’s the balloon). The balloon payment is usually calculated as a percentage of the loan amount.
You may find some lenders offer interest-only repayments or can adjust the size of the balloon payment to suit your needs. If you want to keep using the vehicle at the end of your term, you will either need to pay the balloon or trade your vehicle in to cover the residual amount. Not every chattel mortgage will come with a balloon payment.
How to secure the best interest rate on your chattel mortgage
One way to get the best interest rate on a chattel mortgage is to opt for a non-bank lender or specialist asset finance provider. These lenders can often offer more competitive rates on a chattel mortgage because they have lower overheads. Their online application process is usually also faster and simpler, sometimes with same-day approval. Traditional banks generally can’t be as competitive because they have higher overheads and lengthy application processes.
Aside from choosing the right lender, the best chattel mortgage interest rates are offered on brand-new vehicles, and to businesses with a good credit score and steady income (a prerequisite for repaying any loan). Remember that you pay less interest on a shorter loan term, which could be worth it if your business can afford it.
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How to apply for a chattel mortgage
When you apply for a chattel mortgage, lenders will look at your financial information and business history to assess your credit profile.
1. Supporting documents
You’ll need to submit some financial documents to support your application and show you can meet your repayment obligations. This typically includes:
- Bank statements from the last six to 12 months
- Business registration and tax information (e.g. BAS statements, tax returns)
- Identification documents (e.g. driver’s licence, passport)
2. Your business information
Lenders will also look at your business tenure and experience to better understand its risk profile. They’ll want to see:
- Proof that you’ve been operating for the minimum required period
- Your business structure (e.g. company, partnership, joint venture, sole trader)
- The location of your business
- The industry your business operates in
Non-bank lenders have an entirely online application process and often provide conditional approval on the spot. When you submit your application, you'll find out the chattel mortgage interest rate you qualify for.
FAQs about chattel mortgage interest rates
What’s the interest rate on a chattel mortgage?
Chattel mortgage interest rates are usually fixed between 5%-10% p.a. Rates will vary depending on the type of asset you want to finance and whether that asset is brand-new or previously owned.
Is the interest rate on a chattel mortgage tax deductible?
Yes, you can claim the interest payments on your chattel mortgage as a tax deduction. You can also claim GST on the initial asset purchase price as an Input Tax Credit, and the asset’s depreciation as a deduction on your annual tax return.
Are chattel mortgage rates fixed or variable?
Chattel mortgage interest rates are usually fixed over the entire loan term and repayments cover both the principal and interest. A fixed-term interest rate means your interest rate will remain the same during the loan period, regardless of whether interest rates go up or down. A chattel mortgage is similar to a fixed-rate home loan (also often referred to as a mortgage). There are some chattel mortgages with a variable interest rate.
Is the advertised rate on a chattel mortgage accurate?
No, the advertised rate is only a ‘headline’ rate and doesn’t include any fees or charges. The most accurate way to compare offers from different lenders is to use a comparison rate which is a percentage rate that includes interest, plus any additional fees and charges. Sometimes, a chattel mortgage with a higher advertised rate is cheaper than one with a lower rate, once all fees have been included.
Will I pay more interest on a chattel mortgage if I have bad credit?
Yes, interest rates are typically higher on a chattel mortgage for bad credit borrowers. You could alternatively apply for a bad credit business loan or speak to a specialist subprime lender about your options.
1. Proprietary data of small businesses who applied for a chattel mortgage through Lend.com.au and have been operating for at least five years (2023).