Chattel mortgage interest rates in Australia are fixed between 4.00% - 6.00%, while the rate applied to your loan will depend on the lender you apply with, and the type of asset you are wishing to finance. The lowest rates will be offered on brand-new vehicles and machinery.
Other factors that impact the rate include:
- The loan amount and term
- The type and age of the asset you are financing
- Your credit history
- Your income as a sole-trader, or business turnover
- The security - if any - you can provide a lender
Balloon payments and interest rates
Chattel mortgages can be set up to include a balloon amount, which results in lower scheduled repayments at the cost of a higher final payment. Accepting a balloon payment will not give you a lower rate, it will only lower your monthly repayment amount due to a large, final payment.
You may also find some lenders offer interest-only repayments, or can adjust the size of the balloon payment to suit your needs. However, if you wish to keep using the vehicle at the end of your term, you will either need to repay the outstanding amount, or trade your vehicle in to cover the residual.
How fees impact interest rates and repayments
Keep in mind the fees included with your chattel mortgage, as this can directly influence how valuable this type of finance is to your situation. For example, an early termination fee - applied when a borrower repays the loan amount before the end of the term - may allow the lender to reclaim some of the interest they would have gained throughout the term.
In this instance, the penalties applied when repaying early nullify the benefits you’d receive from initially lower rates. It may even make another form of vehicle finance a more suitable option, such as a secured car loan with no termination fee, or a finance lease.
Be sure to check with your lender to see what kinds of fees they will apply and whether this will affect the total amount you pay over the term - especially if you are planning to repay the loan amount early.
How to compare interest rates for a chattel mortgage
To compare interest rates for a chattel mortgage, you’ll need to consider whether the rate is variable, or fixed, and then look at any included fees to determine the comparative interest rate.
- Fixed interest rate: Fixed rates are set for the entire term of the loan and do no change. The benefit of fixed interest is to know that rates won’t change throughout the loan term, however if lenders reduce their rates, you’ll still be locked in at the higher rate as well.
- Variable interest rate: Variable rates are the opposite of fixed, in that they can change at any time. Variable interest will be more difficult to budget for; you’ll need to prepare for the possibility that interest rates may increase throughout the term.
- Comparative Rate: The interest rate which includes all fees to give a true representation of the repayment amount. You may find a chattel mortgage with higher advertised rates are cheaper than those with a lower rate, once all fees have been included.
The best chattel mortgage interest rates are offered on brand-new vehicles, and to borrowers with a clean credit score and high, stable income. A balloon payment can be used to reduce your regular repayments, however it will not affect the rate applied to the loan.
The best rates may also not be the lowest, advertised rate; once fees have been included in the total amount calculation, a higher-rate loan with no fees can work out to be the better deal. In general, chattel mortgage interest rates are lower than a consumer car loan, with the added benefit that the business can claim interest and depreciation from using the vehicle.