Sometimes the terms of finance are difficult to understand. For your convenience we have developed a glossary.
Chattel Mortgage is one of several business car finance options. This type of loan allows a customer to purchase a vehicle by using another moveable property item (chattel), such as other business equipment or another vehicle which is put under mortgage to secure the new loan.
A chattel mortgage is similar to a residential mortgage, except the vehicle or equipment is the security rather than property. With a chattel mortgage, the customer takes ownership of the vehicle (chattel) at time of purchase and a mortgage says over the vehicle until the loan is repaid in full.
A chattel mortgage is particularly useful for any business operating on a cash method of accounting, including companies, partnerships and sole traders, as it allows you to claim the GST component of any vehicles or equipment you purchase upfront.
Benefits of a Chattel Mortgage
- Flexible mortgage terms 1 to 7 years
- Can reduce repayments by electing to have a Balloon payment
- Fixed Interst rate
- Tax deductions for interest and depreciation
- A number of other Tax benefits in regards to GST – disucss with your accountant
As with all other types of business finance, you should thoroughly investigate the taxation and accounting implications with your Accountant, as this is general information and not specific to your situation.
Comprehensive Vehicle Insurance
Comprehensive Insurance is usually required when you finance the purchase of your car, boat, bike, camper or caravan, as it is a requirement of lenders, part of the loan contract, when the purchase is being used as security.
For any loan you can arrange comprehensive insurance from the insurer of your choice, or ask us and we can arrange a quote.
Comprehensive Insurance provides benefits to yourself, your family and 3rd parties by protecting the value of your vehicle and protecting yourself in accidents, including those with 3rd parties.
Each insurer will have their own Product Disclosure Statement for their product which will detail what is covered, benefits, level of covers and any exclusions that may apply.
Some benefits that you may wish to consider whether they are important to you are:-
- New for old replacement
- Agreed or Market Value
- Choice of Repairer
- Pay by the month option
- Hire Car for accidents or theft
- Windscreen Cover
- Multipolicy discounts
- Excess Options
- Emergency Assistance
Comprehensive Insurance can be easily financed into most loans, so you dont have to outlay further money when purchasing your dream.
With a lot of options in the marketplace, it is important to decide on a policy that provides value not only in your insurance premium, but in the range of added benefits that come with a flexible policy.
Equipment finance is a loan taken out against a piece of equipment used in a business.
There are a number of different finance options
- Commercial Hire Purchase
- Finance Lease
- Chattel Mortgage
Finance Lease is where a leasing company (lessor) takes ownership of vehicles and equipment and then leases them out to a business (lessee) for an agreed repayment amount and term, usually two-to-five years. Leasing finance may be ideal when you need vehicles or equipment that has long effective lives.
A leasing finance agreement is at a fixed rate, fixed term contract and lease payments are also usually tax deductible and you should be able to claim the GST proportion of your payments for tax purposes.
At the end of the lease the borrower (lessee) can either pay a residual value (final instalment) on the lease and take ownership of the equipment or car, trade it in or re-finance the residual and continue the lease.
You may also be able to claim some tax benefits, including depreciation and the interest costs.
Benefits of a Finance Lease
- preserves the existing cash of the business, allowing funds to be invested in more productive areas of the business
- Other associated costs may be finances such as Comprehensive Insurance, registration and on-road costs.
- Fixed rate and term, allowing for accurate budgeting and cash flow management
- Lease rentals can be specifically structured to suit the business cash flow
- Lease rentals are allowable tax deducations if the asset is used to generate assessable income
- Finance Leases are off-balance sheet transactions and require minimal business administration
- Residual value is predetermined
As with all other types of business finance, you should thoroughly investigate the taxation and accounting implications with your accountant, as this is not specific to your situation and is general information only.
Fully Maintained Lease
A fully maintained novated lease is nearly the same as a standard novated lease except all the motor vehicle running expenses such as petrol, rego, car insurance, maintenance are included in the monthly lease payment.
Under a fully maintained novated lease arrangement, a fleet management company packages all the running expenses up into one monthly car lease payment. The fleet management company will collect the monthly car lease payment and distribute the funds to the third party providers on your behalf (ie fuel provider, maintenance provider).
Gap Cover Insurance
Gap insurance provides peace of mind by protecting you and your vehicle from certain losses in the future.
This insurance protects the borrower by paying the shortfall amount to the lender, if in the event the borrower has a total loss due to accident, theft or damage, and the amount from the comprehensive insurance is not sufficient to clear the loan in full.
There may be a gap because the borrower borrows more than the vehicles market value, possibly becuase they have included registration costs, stamp duty, dealer delivery and insurances in the loan, and the value of the vehicle falls relatively faster than the principal balance of the loan in the first half of the loan term.
This insurance can only be purchased at the time of a new loan when the vehicle is being purchased and is comprehensively insured.
Gap Insurance can be easily financed into most loans.
A Commercial Hire Purchase (CHP) or Hire Purchase is used where the customer hires the vehicle/equipment from the financier for a fixed monthly repayment over a set period of time – usually one-to-five years.
Unitl the hire charges/repayments have been paid in full, legal title of the equipment remains with the lender.
The payments of a hire purchase can be structured by varying the level or deposit and/or having a balloon payment.
Unlike the Finance Lease option where the full amount of the lease rental is tax deductible, only the interest component of the payments and the depreciation on the goods are tax deductible. This is general information only, and your personal situation should be discussed with your Accountant / Tax Professional to decide on the best option for you.
Possible benefits of a Hire Purchase
- Preserves the cash or credit facilities of the borrower/hirer’s business. These funds can then be used for other areas of the business
- Additional expenses with the purchase such as Comprehensive Insurance, registration and on-road costs can be included and thus again freeing up cash for the business
- Fixed Interest rates
- Hire Charges /repayments can be specifically structured to meet the cash flow of the business
- A Balloon payment can be structure which can reduce the monthly costs
- Ownership automatically transfers to the Hirer/borrower with the final payment
- Hirer/Borrower has the option to purchase the equipment at any time during the term of the agreement.
- Tax deductions for interest and depreciation are possible
- GST is not charged on rental repayments or residual
A Commercial Hire Purchase can be used for the purchase of Cars, boats, bikes, caravans, camper trailers.
As with all other business finance options, you should thoroughly investigate the taxation and accounting implications with your accountant, as this is general information and not specific to your situation.
Loan Protection Insurance
Consumer Credit Insurance (CCI) protects the borrower in the event of accident, sickness, involuntary unemployment, or death.
If the borrower is unable to work due to an accident, sickness or involuntary unemployment, the Loan Protection Insurance will cover the loan repayments for a stated period of time or until they can return to work.
In the event of death, the loan is repaid in full.
Loan Protection Insurance or CCI can be easily financed into most loans.
Rent to Own
The Rent to Own Solution is all about having the flexibility and options of a rental while still contributing towards paying off the asset so you can one day own it. You start with a 12 month rental contract where you pay a weekly rental amount which helps to pay off the asset. The real benefit is in the flexible options that you have available from here! You have 4 flexible options to buy, return, continue to rent or own over a longer term. As you can see – it’s all about giving you the flexibility to choose what you do with your equipment along the way instead of just locking you into a 5 years contract upfront with no options!