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Friday, June 25, 2021

8 Key Benefits of a Chattel Mortgage

There are many available options that you can take advantage of when acquiring real estate. The main issue in this case, which is the best financing option depending on your situation.

If you want to purchase a home, a chattel mortgage will come in handy; this type of loan is preferable when purchasing a house that is not attached to the land permanently. As a business owner, you will gain significantly from the financial advantages that accrue from taking the mortgage instead of applying for another loan type. For instance, if you want to purchase a car for your business, the mortgage is preferable instead of opting for a consumer car loan. In most instances, such loans are applied by individuals instead of corporations.

For such loans, the “chattel” is used as collateral to secure the loan. When purchasing a car, it can also be used as collateral. The buyer will become the car’s sole owner after they have paid off the loan in full, which means the mortgage will be removed.

Since the mortgage can be likened to a business transaction, it is possible to claim different benefits meant for business clients, including depreciation.

The benefits of the mortgage include:

  1. You Can Claim Back the Interest and Depreciation

One of the major benefits of acquiring a car for your business using a mortgage is that you can easily claim the GST paid for the car using your BAS (Business Activity Statement). Depending on the specific type of mortgage, you can also claim the interest and depreciation. The entire input tax credit can also be claimed back.

  1. Your Cash Flow Will Not Be Affected

You can trade in for a car that you want or even pay a deposit. It all depends on your financial capabilities and personal preferences. In most instances, you’re not supposed to fund the car at any given stage. It means your cash flow will be well structured, and future repayments can be easily accounted for.

  1. The Interest Rates are Low

When applying for a loan, you should keep in mind there are different charges, including account keeping fees. Fortunately, a mortgage doesn’t have any of these additional costs. If you’re purchasing a car, it will act as collateral which means a business person will gain from the low interest rates compared to when they have applied for an unsecured loan.

  1. The Terms are Flexible

The mortgage can be structured such that it will be similar to a consumer loan. You will issue payments regularly until the whole amount is paid off. You can try out residual value payments at any given moment. The payment term can range from one year to five years. In some instances, the term can be longer depending on certain factors. You can also ensure the mortgage has been insured.

  1. The Mortgages are Not Regulated

Although the mortgages have numerous benefits, they are not regulated by the NCCP Act (National Consumer Credit Protection Act). As a result, some credit checks will not be present; nevertheless, licensed credit providers should ensure such checks are present. The NCCP Act ensures there is no predatory lending; thus, people who can’t pay back a loan will be denied access to loans. The borrower is also vulnerable because of the lack of consumer protection such that they may fail to understand the loan terms since they are not clear, and the fees will also vary compared to consumer loans.

  1. Tax Benefits

Let’s assume you want to acquire a car using the mortgage; since it may be for business purposes only, the payments will be tax-deductible. The GST (goods and service tax) will not be charged in the contract amount or monthly repayments. Instead, the purchase price will be subject to the GST (goods and services tax). Since the GST is also financed, the borrower can claim an input tax credit.

You can claim tax deductions on the following:

  • Depreciation
  • Interest payments
  • The car’s running costs (that is, if the mortgage is meant for purchasing a vehicle)
  1. A Short Loan Term

The mortgage usually has a shorter loan term as compared to the traditional mortgages. The short loan term is quite beneficial in different ways.

  1. The Processing Fees is Low

The main reason why you should apply for this mortgage is because there are no hidden charges. The processing fee is also low, which means the mortgage is a suitable option for business people.

Final Thoughts

If you want to acquire a piece of equipment that is movable or a home, you should apply for a mortgage as your preferred type of loan. The loans have low processing fees, and the repayment term is short. The only issue is the interest rates will be high as compared to conventional mortgages.

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