30 October 2020

Making sense of Asset Finance and Chattel Mortgages

What are Asset Finance and Chattel Mortgages

For the average person using finance to buy a car or any other household consumer product means diving into the world of Asset Finance.  The concepts and terms can seem confusing, but it doesn’t have to be that way.  Today we’re going to give you an introduction to Asset Finance and some of the main financing options.

Asset Finance is a broad term often used to explain the range of financing options available when acquiring consumer products such as vehicles, boats, caravans, machinery, office equipment and household items like TVs and computers.  Under the term Asset Finance, there are a number of actual financing options such as Chattel Mortgages, Finance Leases, and Personal Loans etc.

Whatever your financial position, you can decide what type of finance is right for you. In this article, we can discuss the options that are available to you, whether you are looking for personal or business finance options.

Chattel Mortgages

This is a popular method of financing vehicle purchases (new and used) and a range of other equipment and machinery assets.  Under this arrangement, you have possession and use of the asset in return for making regular payments to the lender.  The lender (bank etc) takes a ‘security’, (mortgage) over the asset in exchange for providing the loan funds.

By way of comparison, it’s like a home loan and mortgage where the lender may repossess the asset if you don’t make the repayments.  The loan is finalised once the final payment has been made.  There is a range of features and benefits relating to this finance option including balloon payments, loan terms and potential tax benefits. Chattel Mortgages will have a low rate as it is tied up to the asset. Like any finance option you need to determine if it’s suitable for your circumstances.

Finance Leases

This method of finance is often used to fund both new and used vehicle purchases and other equipment and machinery assets.  Many computers, electrical and furniture stores offer this option when purchasing equipment.  In this case, the asset is owned by the lender, but the customer has possession of it in return for making regular lease payments.
Once the final payment has been made, including any balloon payment, the ownership of the asset transfers to the customer.  There is a range of features and benefits including loan terms and potential tax benefits.  If you are self-employed and own a business, a Finance Lease can be a tax-effective way of financing assets.

Personal Loans

This option is used for purchasing older assets as lenders often place restrictions on the type, age, and value of assets they are prepared to finance.  Personal loans aren’t secured against the asset, and consequently, the rate is usually higher than a chattel mortgage or lease.
Personal loans can also be beneficial if you are unsure of what car or asset you will be purchasing, for exmaple a secured car loan is only for cars 5 years or newer.

Conclusion

In conclusion, there are many asset finance options available for your situation. Chattel mortgages and Finance leases are good options for buying assets but the asset is tied to the payments. Personal loans are better for older equipment that other options won’t cover, however, personal loans have a higher rate than the other two options. Before you make a financial decision, it is best to speak to your accountant or broker to discuss the best finance option.

Hewcorp Finance provides professional home, motor vehicle, truck, caravan, marine and asset finance services to customers in Redland Bay, Bayside suburbs, and the greater Brisbane region.  You can follow Owen on LinkedIn LIKE us on Facebook, or view information about car finance on our website.