Chattel Mortgage vs Lease
A chattel mortgage is a common way Australian businesses finance cars. It is a commercial finance product where a financier lends the money to buy a car and the customer makes regular repayments.
The business assumes ownership of the vehicle but the financier has a ‘mortgage’ over it until the loan is paid, including any balloon payment. Businesses can choose to have a balloon in order to reduce repayment amounts, or schedule the repayments to pay off the whole amount over the term.
GST applies to the purchase price of the vehicle. Businesses that account for GST on a cash basis can claim an Input Tax Credit for the GST in the purchase price on their next Business Activity Statement (BAS).
What is a Chattel Mortgage?
When your business needs a vehicle, one of the first decisions is usually how to finance it. Both chattel mortgage and leasing can be the right choice in different circumstances – which one is best for your business?
With a LeasePlan operating lease, you are paying for fair use of the vehicle - similar to a long term rental. The monthly payment is based on the term and kilometres and includes the vehicle operating costs (registration, servicing, tyres, etc.). At the end of the lease term, you simply hand the vehicle back – hassle free.
With a chattel mortgage, you are financing the car and take the risk for the re sale value at the end of the term. Finance is covered in your monthly payment , but you take responsibility to manage all vehicle operating costs (registration, servicing, tyres, etc.) separately.
Chattel Mortgage or Operating Lease?