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Chattel Mortgage

One of the ways to secure finance for purchasing an EV car or any machine at that is known as Chattel Mortgage. It is a popular means employed by various firms, individuals and partnerships for asset acquisition. It operates like this: A seeks out a loan from B for the purchase of an EV car, and in return, B obtains a mortgage interest (equitable interest) in the chattel. That is, the lender’s interest is automatically registered as the mortgagee until the period of the loan expires. Until then, they share ownership of the chattel, although the possession lies with the borrower/mortgagor.

Chattel Mortgage is used to finance a lot of options- transportable homes, equipment and machines etc. The finance option is primarily used for business and most commonly associated with vehicle purchase. One of the advantages of a chattel mortgage is its flexibility when it concerns repayment. There are other benefits of a chattel mortgage.

Low-interest charges

Chattel Mortgage is a form of secured loan and does not involve payment of substantial interest charges. The rate is usually meagre. Often, the interest payment is inflated because of the risk of advancing an unsecured loan.

Flexibility

Chattel Mortgage includes payment of a deposit (balloon payment) which is usually a significant amount. Consequently, the monthly repayment becomes lower. Also, this depends on the term of the loan because interest increases with the loan span.

Most importantly, the balloon payment must be suitable with your capacities.

Tax advantage

Possession of certain EV cars allows you to claim tax exemption. Also, companies can lay claim to some tax credits attached to a chattel mortgage.

Proprietorship

Unlike other financing options, the ownership title resides with the borrower, although it is tentative until the loan is fully paid.

How it works

The process of obtaining finance for asset acquisition through chattel mortgage is not at all complex. The first step is submitting a request to the lender by self or best by a broker (Polywaste EV). After the request is processed, negotiations set in, and we try out our best skills in securing the best deal.

The chattel (EV car) is delivered to you with all necessary legal and paper works that transfer a tentative proprietorship title to the borrower and confer an equitable interest. The equitable interest allows the lender to possess the chattel in case of any default, although ownership would still be vested in the borrower.

It is noteworthy that the borrower’s title is tentative until the debt is paid fully.

Chattel Mortgage vs Regular Mortgage

Chattel Mortgage is a variation of available mortgage and, therefore, is distinct. Firstly, the chattel mortgage is different from a regular mortgage because, in the latter, any default on the part of the borrowers give the lender the right to repossess the mortgaged item and end the contract. For a chattel mortgage, the lender does not have the power to repossess the chattel. The only effect that default has is that the proprietary title slightly shifts to the lender, and he acts as the owner until the loan is liquidated.

Chattel Mortgage vs Lease

The difference between chattel mortgage and lease is glaring. First, chattel mortgage confers proprietary title on the borrower although may shift to the lender in case of default. On the other hand, leasing merely transfers possessory rights to the borrower. The chattel is expected to be returned after the expiration of the contract.

Furthermore, leasing involves rental, while the chattel mortgage is associated with purchasing. It involves purchasing a chattel from a loan secured on the strength of the chattel itself.

Chattel Mortgage Rates

Although the repayment term is flexible, chattel mortgage involves higher interest payments than property mortgage where the years of repayment are short. Chattel Mortgage allows you to access income tax deductions because of depreciation costs and interest rates.

Finally, it is more advantageous to companies that have assets to buy for business.

FAQs

Who is eligible for a chattel mortgage?

A chattel mortgage is suitable for both individuals and businesses. However, the motive behind requesting a chattel mortgage must be for business, however small it might be. Hence, even sole proprietors can finance their business through a chattel mortgage.

What are the alternatives to chattel mortgage?

Chattel Mortgages is only one out of many finance options. Others include bank aids, leasing and hire purchase.

Banks aids are in the form of loans, secured or unsecured, given to bank customers for repayment before the expiring date. On the other hand, leasing refers to rental for a particular period.

Hire purchase involves the delivery of chattel after a deposit has been made and payment of agreed instalments until the end of the contract, when the hirer may elect to buy the chattel or not. If he does not purchase the chattel, he terminates the contract, and there is no penalty for so doing.

Which obligations would I be expected to fulfil?

You are only required to liquidate your debts without default. Hence, you are entitled to a tax deduction to prove that the chattel is primarily for business purposes.

What is the meaning of residual value?

After the loan has been paid, the final balance paid for the vehicle is known as the residual value.

Why should I choose a chattel mortgage over other finance options?

All finance options have their advantages, and the preferred one depends on individual needs or demands. A chattel mortgage involves low-interest charges, tax deductions, high cash flow, flexible loan term etc.

Is ownership for life or short-term?

As long as the parties conform to the terms of agreement and the debt is being liquidated, ownership forever resides with the borrower.

Is chattel mortgage and lease the same thing?

No, they are not. The difference has been fully explored above. Lease involves short-term rental of equipment including cars. Chattel mortgage on the other hand aims at full ownership.