The advantages of taking out a movable mortgage over a consumer loan
In auto financing, one size rarely fits all. You may be thinking that there is only one type of car loan.
In fact, there are several. If you are an ABN holder, a consumer loan – the most common type – may not be the best fit for you and your business.
If you buy a car for more than 50% business use, a loan product called a chattel mortgage may be more beneficial than a standard consumer loan.
1. Defined movable mortgage
A movable mortgage has two parts – the movable property and the mortgage. Movable property is also called a “security”; what is the value of the loan related to. In this situation, your purchase car is the “personal property”. The mortgage is the loan itself, which is the amount of money plus interest owed to your lender.
As a business owner, you can claim depreciation and interest charges on your BAS
2. The initial advantages of a movable hypothec
Chattel mortgages are in the best interests of business people as they can claim any GST paid on the car on their next Statement of Business Activity (BAS). As a business owner, you can also claim depreciation and interest charges on your BAS and, in some cases, the full input tax credit.
Since a chattel mortgage is a type of secured loan, mortgage interest rates are generally lower than unsecured consumer loans.
3. More flexibility
Businesses can tailor their mortgages to individual needs. For example, if you need to secure your cash flow, you can opt for 100% financing plus extras such as insurance so that your initial down payment is zero. You can also post a deposit or exchange your old vehicle.
You can also structure the loan with a residual or “balloon” payment at the end of the loan. You can set the loan term from 12 to 60 months or even longer (in some cases).
4. What you should know
Unlike consumer loans, mortgages do not fall under the regulatory framework of the National Consumer Credit Protection Act (NCCPA). The NCCPA requires approved credit providers to perform strict credit checks and ensure other consumer guarantees when reviewing loan approvals.
They should also provide information about fees, charges and other information about the loan in advance. It is bad business practice to hide information from potential customers. However, we invite you to note the exemption of movable hypothecs from the regulation.
Article credit: Savvy