A chattel mortgage is a type of loan that can be used to finance the purchase of business equipment or vehicles. The collateral for the loan is the asset that is being purchased. The main benefit of a chattel mortgage is that the interest rates are typically lower than with other unsecured loans. Keep reading to learn more about the benefits of a chattel mortgage.
How a Chattel Mortgage Works
A chattel mortgage is a loan that is secured by personal property, such as a car or motorcycle. The borrower pledges the property to the lender as collateral for the loan. This type of loan is often used to finance the purchase of high-value items, such as a vehicle or a piece of equipment. The lender provides you with the cash to purchase the asset and the asset is then used as collateral throughout the life of the chattel loan. Below, you’ll learn about some of the benefits of chattel loans for borrowers.
More Tax Deductions Available
When you take out a chattel mortgage to buy a car, boat, or other personal property, you can typically deduct the interest on the loan from your taxable income. This can save you money each year and reduce your tax bill. In addition, if you use the property as collateral for the loan, the interest may be tax-deductible even if you don’t itemize your deductions. And because you own the asset, you can claim interest and depreciation costs if you use it for business.
Applicable to Many Types of Purchase
One other benefit of this type of loan is that it can be used for any type of purchase, including the purchase of new or used equipment, the renovation of existing equipment, or the expansion of a business. Because a chattel mortgage is secured by specific pieces of equipment, you have ownership over the asset once the loan is through. And you can still get approved for the loan even if you have other debts.
Less Personal Liability
When you use a chattel loan, the asset you’re purchasing is used as collateral. This means that the lender cannot repossess other assets in the event that you fail to make repayments. There is less personal liability with this type of loan, and the terms to pay it back are usually longer.
No Credit Score Required
Another factor that sets the chattel mortgage apart from other loans is that it does not require a credit score. This makes it ideal for people who may have had some financial trouble in the past and have difficulty getting approved for traditional loans. Additionally, this type of loan does not require any down payment, which can be helpful for people who do not have a lot of money saved up. Because the asset you’re purchasing is a means of security, there is less documentation involved. In fact, the lender is less likely to review your credit history or your financial history. If you have other debts like a traditional mortgage or business loan, you will not be penalized for getting a chattel loan.
Fixed Interest Rates
If you’re worried about monthly payments, you’ll be glad to know that fixed interest is an option. Lenders also have different fees and rates, so you can search for lenders that have lower interest rates and longer terms. Utilize a comparison-shopping website to find loans and products that are best suited to your interests.
Overall, a chattel mortgage is an important tool for businesses that need to secure financing. The benefits of a chattel mortgage include fast approval times, a simple application process, and the ability to use the assets being financed as collateral.