Chattel mortgage for business vehicles

If you’ve asked a dealer about finance for a work ute or van, you’ve probably heard the words “chattel mortgage”. It sounds old-fashioned — “chattel” is simply an old word for movable property — but it’s the structure most Australian businesses use for their vehicles. Here’s how it works, in plain English.

What is a chattel mortgage?

A chattel mortgage is a loan your business takes out to buy a vehicle (or other equipment). Three things define it:

1. Your business is the buyer and the owner. The vehicle is registered and owned by your business from settlement.
2. The lender takes security over the vehicle. That security interest is registered on the Personal Property Securities Register (PPSR), which is how a lender records its claim over movable property.
3. You repay the loan over a fixed term. Usually with regular repayments, and optionally with a balloon left owing at the end.

When the loan — including any balloon — is repaid, the lender’s security interest is removed and the vehicle is yours, free and clear.

How is it different from a car loan?

In shape, it’s very similar to a secured car loan. The difference is purpose. A chattel mortgage is structured for a business buying a vehicle for business use: the borrower is the business (a sole trader, partnership, company or trust), and the tax treatment follows the business. That’s why your accountant should be part of the conversation.

How does a chattel mortgage compare with a lease or hire purchase?

	Chattel mortgage	Finance lease	Hire purchase
Who owns the vehicle	Your business	The lender	The lender, until the last payment
Lender’s protection	Registered security interest	Ownership	Ownership
End of term	Pay any balloon — vehicle is clear	Pay residual, refinance or return	Final payment transfers ownership
Appears as your asset	Yes	Generally no	Ask your accountant

business.gov.au makes the general point well: buying means you own the vehicle and can modify or sell it, while leasing means you rent it from a company that owns it. A chattel mortgage is the “buying” side of that comparison. See our pages on the finance lease and hire purchase for the other two.

Who usually chooses a chattel mortgage?

• Owners who want the asset. The vehicle sits on your balance sheet and can be counted as a business asset.
• Businesses that customise vehicles. Owning means you can fit canopies, racks and signage without a lessor’s permission.
• Operators who keep vehicles a long time. Once it’s paid off, the vehicle keeps working with no repayments.
• Businesses registered for GST. business.gov.au notes GST-registered businesses may be able to claim a GST credit when buying a vehicle for business use. Your accountant can explain how that works with your structure.

If you’re weighing up options for a particular vehicle, ask a specialist — there’s no credit check involved in enquiring.

Should you add a balloon?

A balloon is a lump sum left owing at the end of the term. It lowers the regular repayments because less of the loan is paid down during the term. It suits a business that plans to trade the vehicle at the end of the term and expects the trade-in to cover most of the balloon. It suits less well if you plan to keep the vehicle, because you’ll still have to pay or refinance the balloon. Lenders set maximum balloons based on the vehicle, its age and the term.

Our fleet cost planner shows exactly how a balloon changes the amount paid down during the term, and balloon payments explained covers the trade-offs in more depth.

What happens at settlement?

Once approved, the lender pays the dealer or seller directly, the vehicle is registered in your business’s name, and the lender records its security interest on the PPSR. You take delivery. With the invoice, ID and bank statements ready, approval and settlement can move fast, and next-business-day settlement is possible for straightforward applications.

Selling or trading a financed vehicle

You can sell or trade a vehicle under a chattel mortgage at any time, but the loan must be paid out as part of the sale so the lender can release its security. Dealers handle this every day: they get a payout figure from your lender and settle it from the trade-in value. If you’re selling privately, the buyer will — or should — run a PPSR search and see the security interest, so arrange the payout first. Check your contract for any early payout costs.

What can go wrong?

• A balloon that’s too big. If the vehicle is worth less than the balloon when the term ends, you’ll need to cover the gap.
• The wrong buyer name on the invoice. The tax invoice must be in your business’s exact legal name and ABN, or settlement stalls.
• Assuming the tax outcome. GST, depreciation and the ATO’s car limit depend on your circumstances. Check with your accountant first.
• Insurance not arranged. Lenders usually need comprehensive insurance in place from settlement.

Is a chattel mortgage right for your vehicle?

For many businesses, a chattel mortgage is the simplest way to own the vehicles they work with. Tell us what you’re buying and we’ll talk through whether it suits, or whether a lease or hire purchase fits better. There’s no credit check to enquire, your enquiry stays with one specialist rather than being shared around lenders, and a real person will call to walk you through it. Please fill in the form accurately — the vehicle, price and your trading history — so we can set it up properly first time.

Check your chattel mortgage options →