Chattel Mortgages Explained: A Smart Way to Finance Business Assets in 2025

Chattel mortgages are one of the most practical and tax-effective financing solutions for Australian businesses in 2025. If you’re a business owner looking to purchase a vehicle or equipment without depleting your working capital, a chattel mortgage may be for you. This guide will walk you through how chattel mortgages work, who they’re for, and whether they’re the right fit for your business.

Chattel Mortgage: What It is and How It Works

A chattel mortgage is a business loan that allows you to finance movable assets—like vehicles or equipment—while taking immediate ownership. Unlike traditional property mortgages, the “chattel” is personal property used for business purposes, and the lender secures the loan by registering a mortgage over that asset.

Here’s how it works in simple terms:

• You choose the asset you need.
• The lender provides funds for you to purchase it.
•  You legally own the asset from day 1.
• The lender registers a security interest (via the Personal Property Securities Register).
• You pay off the loan through fixed, regular instalments.
• Once repaid in full, the lender removes their interest and the asset is entirely yours.

This arrangement offers a balanced mix of asset control and cash flow flexibility, making it particularly appealing to small and medium-sized enterprises (SMEs) in 2025

Who is Eligible to Apply?

Chattel mortgages are available to businesses and individuals using the financed asset primarily for business purposes (at least 51%). Eligibility criteria usually include:

• An ABN (Australian Business Number)
• Registration for GST
• Asset use for business purposes
• Proof of stable income and business trading history (typically 6-12 months)
• A reasonable credit score (usually a minimum of 500, but a credit score of 575+ can improve the chances of getting approved)
• Australian citizenship or residency

Even self-employed individuals, sole traders, partnerships, and trusts can apply, provided they meet the above conditions.

Assets You Can Finance

Chattel mortgages can be used to fund a wide range of business assets. The asset must be a tangible, movable item used in the course of business. Below is a quick breakdown of eligible assets and average loan amounts:

Asset Category	Examples
Light Vehicles	Cars, Utes, Work Vans, Motorcycles
Heavy Vehicles	Trucks, Excavators, Buses, Trailers
Business Machinery	Forklifts, Manufacturing Equipment, Medical Devices
Specialised Equipment	Commercial Kitchens, Gym Machines, Security Systems, ATMs

Pro Tip: Most lenders are flexible in what they consider as acceptable business-use assets. However, always ensure the item qualifies before committing.

Why Business Owners Choose Chattel Mortgages

Here are some benefits that make chattel mortgages increasingly popular among business owners:

1. Immediate Ownership and Control

The biggest draw is instant ownership. Ownership is immediate—you don’t need to wait until the loan is repaid. This means:

• You can claim depreciation.
• The asset appears on your balance sheet.
• You decide how and when it’s used.

2. Tax Efficiency

If you’re registered for GST, chattel mortgages offer a range of tax benefits:

• GST Claim: The GST paid on the asset’s purchase can be claimed back in your next BAS.
• Interest Deductions: The interest on your loan repayments is usually tax-deductible.
• Depreciation: The asset can be depreciated under the ATO’s guidelines—potentially faster under accelerated schemes.
• No FBT on Repayments: Unlike some leases, repayments aren’t typically subject to Fringe Benefits Tax.

3. Cash Flow Flexibility

With a chattel mortgage, you can:

• Choose loan terms, usually between 1 to 7 years.
• Finance 100% of the purchase price, or reduce monthly repayments by paying a deposit.
• Opt for fixed interest rates, making budgeting easier.
• Include a balloon payment at the end of the term can help reduce your monthly repayments.

For example, on a $60,000 loan with a 30% balloon, you’d only repay $42,000 during the loan term, leaving $18,000 due at the end. This keeps your monthly repayments lower—ideal if your business has seasonal income.

Are There Any Disadvantages?

While chattel mortgages are advantageous, there are potential downsides that you should understand before signing:

Risk of Asset Repossession

If you default, the lender can repossess the asset since it acts as security for the loan. This could disrupt your operations if the asset is vital to your daily business.

Maintenance Responsibilities

You own the asset, which means:

• You will pay for servicing, insurance, registration, and repairs.
• You’re also responsible for keeping the asset in good working order.

Balloon Payments Can Catch You Out

While balloon payments can reduce your monthly repayments, they present their own challenges:

• You may end up paying more interest over the total life of the loan.
• You’ll need a strategy for handling the balloon payment when it becomes due
• If you can’t pay the balloon amount, you may need to refinance, potentially at less favourable terms

Fewer Consumer Protections

Chattel mortgages do not fall under the National Consumer Credit Protection Act (NCCPA). This means you need to do your due diligence and read every clause in the contract.

Chattel Mortgage vs Other Business Finance Options

Let’s see how chattel mortgages stack up against similar asset finance methods:

Feature	Chattel Mortgage	Finance Lease	Hire Purchase
Ownership	Immediate	Lender owns asset	Ownership after final payment
Tax Deductions	Interest + Depreciation	Lease payments	Interest + Depreciation
GST Claim	On total asset price up front	On lease payments	On asset price (varies)
Appears on Balance Sheet	Yes	Sometimes (depends on accounting)	Yes
FBT Exposure	Usually exempt	May apply	May apply

This comparison shows that chattel mortgages are ideal for businesses seeking ownership from day one with access to tax benefits and cash flow management tools.

When Does a Chattel Mortgage Make Sense?

Chattel mortgages may be a great fit if your business:

• Needs equipment or vehicles used more than 51% for work
• is GST-registered and can claim input tax credits on the purchase
• Wants to own the asset from day one
• Has predictable income to meet monthly repayments
• Plans to keep the asset for a longer term
• Seeks fixed costs for easier budgeting

It might not be ideal if:

• You plan to regularly upgrade assets
• You want maintenance included in your payments
• You’re not registered for GST
• The asset will be used largely for personal purposes

Step-by-Step: How to Apply

Applying for a chattel mortgage in Australia is fairly straightforward. Here’s how the process generally works:

1. Assess your needs: Know exactly what you’re buying and why it’s needed.
2. Research lenders: Compare options for interest rates, balloon payments, and eligibility criteria.
3. Get your paperwork ready:

• • ABN or ACN
  • Proof of income and trading history
  • Bank statements
  • Personal and business identification

4. Submit your application: This can be done online through brokers or directly with a lender.
5. Get approved: Once the lender assesses your documents, you’ll receive an approval.
6. Settlement: The lender pays for the asset and you take full ownership immediately.
7. Start repayments: Begin monthly repayments as per your agreement.

Commonly Asked Questions About Chattel Mortgages

What does it mean if a vehicle is “encumbered”?

It means there’s still money owed on it. The lender has a right to the asset until the loan is complete. 

Can I sell or transfer a vehicle that has a chattel mortgage?

Not without paying off the loan first. A chattel mortgage puts a registered interest (like a lien) on the vehicle, so it’s considered encumbered. You’d usually need to pay off the debt and have the lender remove their interest before transferring or selling it.

Do I need to pay a deposit to get a chattel mortgage?

Not always. Lenders typically offer 100% financing, meaning no upfront deposit is required. But depending on your credit or the asset type, they might ask for one. 

What’s the interest rate on a chattel mortgage?

It varies based on your credit, business profile, and the lender. As of 2025, rates generally range between 6% and 10% p.a., but can be lower for strong borrowers or higher if you’re higher risk.

Final Thoughts

Chattel mortgages remain a popular and effective business finance solution in Australia. They give you full ownership of vital assets, come with valuable tax benefits, and provide flexible repayment structures. As long as your business meets the eligibility criteria and the asset is primarily for business use, this loan type can significantly enhance operational capacity without compromising cash flow.

How We Can Help

At Unlocked Finance, we are dedicated to helping Australian businesses secure the right finance solutions tailored to their needs. Whether you’re buying your first work vehicle, expanding your fleet, or upgrading to new machinery, we handle the paperwork, compare lenders, negotiate rates, and simplify the entire chattel mortgage process for you.

Let us help you secure competitive rates, avoid common traps, and structure your loan to match your business goals. Reach out today to speak with one of our expert Toowoomba Mortgage Brokers who understands Australian business finance.