Chattel Mortgage vs Lease

Posted on Friday, April 24, 2015 - 10:16

If you’re in business and you want to save money on interest and tax, there are many options available to you. One is buying outright and the other is leasing. If you are looking to start up your business or update your current car (or fleet of cars) a lease might look tempting. But what are the real costs and dangers of leasing? We break them down in this blog post.

Leasing – like a hire that goes on and on and on

Leasing can be a great option for businesses that need to update their cars every so often – perhaps every three years. You can get great interest rates on leases and stretch payments over your cash flow. However, lease payments come out of your operational expenses. Leasing is essentially hiring a car over and over again without anything to show for it at the end of the lease. Some leases, such as finance leases, give you the option to purchase the vehicle with a residual payment. Other leases do not.

A car that you have to treat like a hire car

Another aspect to consider about leasing is that leasing comes with its own terms and conditions. Lease agreements may include restrictions on where and when you can use the car, how you must maintain the condition of the car, and a whole heap of other terms that a lessor may impose on you. If you’re a business that requires flexibility, leases can be frustrating.

Chattel mortgages – how they benefit your business

Chattel mortgages are good options because you take ownership of the car immediately. You can use the car any way you wish without restrictions. Once you pay off the mortgage, the car is 100% yours. Yes – the value of the car will have depreciated over that time. The upside is that you can claim depreciation on your BAS. You can even claim the GST of the purchase price on your BAS. You’ll even be able to claim interest paid and the full input tax credit.

Loan terms, repayments and balloon payments

Another upside to chattel mortgages is that you can structure a repayment plan according to your cash flow. You can also shorten or extend loan terms from 12 months to 7 years if you so choose. You can even incorporate a balloon payment into the loan so you don’t pay as much on a regular basis. Better yet, you can claim the GST on your balloon payment! Chattel mortgages can also finance 100% of the car’s purchase value – in some cases exceed that value so you can finance extras.

To find out more, talk to a financial professional and see how a chattel mortgage can work for you.


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