Chattel mortgage and novated lease methods are designed to finance vehicles for business or personal use.

Though the outcome of both these loans is similar, some small contrasts make them different. Today, we will discuss chattel mortgage vs novated lease in detail.

Here, the vehicle usage, loan repayment process, restrictions, ownership, and all the details you need to know are mentioned. Check them out to know which loan you should go for!

Check out the differences between Chattel Mortgage vs. Novated Lease below:  

Novated Lease

A novated lease is a type of loan for purchasing a vehicle that employees use. The employees that are paid a salary can apply for this loan.

They have to pay the amount from their salary. Also, a business owner can apply for this type of lease.

In this case, the business owner needs to pay themselves a salary from their own company. In short, the entire process is dependent on the salary and repayment through the salary.

This process includes the cost to finance a car or a vehicle; the associated running costs are also included. The novated lease finance company or the lender will estimate the cost before the loan is approved.

This procedure will afford GST benefits along with ongoing tax benefits. And keep in mind that the vehicle you are selecting to purchase should be a passenger vehicle.

Whether it's a car or not, the maximum payload should not exceed 1000 kg. However, there's no limit regarding how the vehicle is used in this process. You can use your vehicle the way you want.

Chattel Mortgage

A chattel mortgage is a kind of car or vehicle finance for borrowers that sole traders and businesses use. Just like the novated lease, the GST benefits are the same here.

So, whichever you prefer, the GST benefits will be identical. However, if we talk about the tax benefits, a chattel mortgage offers different tax benefits than the novated lease.

With this process, you won't need to bother about the maximum payload or the vehicle price like you did while purchasing a vehicle through a novated lease.

And so, you can settle for a better vehicle or car choice if you settle for a chattel mortgage. You can use this method for purchasing company cars.

Also, you can use it for buying delivery vehicles. This procedure also works for heavy pieces of machinery. But here, the restriction lies in the usage of the car or vehicle. You can use the vehicle purchases through a novated lease the way you want.

But in the case of a chattel mortgage, you must ensure that the vehicle is used for business purposes at least 51% of the time.

Difference between Novated Lease and Chattel Mortgage

Both novated leases and chattel mortgages are provided to borrowers for financing vehicles or cars. However, the structure of both loans is different from each other.

And they suit different purposes. Here, we will discuss how both of them work and how these two agreements are different from each other.

Ownership

In the novated leasing method, the full personal use and ownership of the vehicle are allowed. An individual can own this and doesn't require any business to get this loan, though you can use it for your business.

On the other hand, the chattel mortgage is different because it is designed for businesses. It works for businesses registered as an asset.

And so, the agreement should be used for business purposes at least 51% of the time or predominantly for the business or the company.

GST

Regarding the tax benefits, both chattel mortgage and novated lease have their offers. They offer different GST and tax benefits to borrowers.

If you are a business or sole trader, you will get GST and other tax benefits for your business.

On the other hand, if you are an individual (an employee), you will get GST benefits and other tax benefits as an employee.

Regarding the GST and the tax benefits of the novated lease, remember that the car or vehicle can only be used for personal or business purposes. In this case, the method will finance a car or a vehicle between $5000 to $150000 and not more.

The period of the loan in a novated lease can be from six months to five years. If we talk about the GST benefits of the Chattel mortgage, you first need to ensure that the vehicle is used for businesses predominantly.

And in this process, the lender might finance 100% of the vehicle's purchase price. The loan is mostly between two years to five years.

However, the lender can set no limit for loan repayment. It depends on the lender, the requirements, and the business.

Restrictions

While chattel mortgages don't have any restrictions on the vehicle, novated leasing has restrictions.

Novated lease can be only used for a passenger vehicle. And for this type of leasing, the maximum payload will be 1000 kg and not more.

However, with chattel mortgages, you can apply for loans for all types of vehicles. Also, you can apply for any business type of machinery here.

Rules of a Novated Lease

Here, the agreement with the employer is necessary too. The borrower of the loan must be paid a specific salary as the process is for the employees. This repayment of the novated salary is deducted from the employee's salary.

The browser will take the entire vehicle ownership in this type of lease. So, using the vehicle depends completely on the borrower or the vehicle owner.

Here, the borrower can use the vehicle for personal and business use. They can also choose to use the vehicle for both purposes. There is no specific necessity to predominantly use the vehicle for any specific purpose.

Rules of s Chattel Mortgage

For applying for a chattel mortgage, the borrower must be a sole trader. Also, he can operate a business. But there should be a connection between the business with borrowing the loan. 

Instead of an individual, the business will fully own the car or vehicle. This one is listed as a business asset, not an individual or personal asset. 

The car or vehicle should be used predominantly (51%) for business purposes. Yes, there's no doubt you can use it as a personal vehicle if you keep the percentage in mind.

Wrap Up

Both of these corporate options are similar. However, one works for the business and the other for personal usage. But in both cases, you can use the vehicle for business and personal use. 

All you need is to remember how much you can use the vehicle for personal use when you have purchased it for the business. 

It's an asset of the business, while for novated lease, it can be the asset of the business or an individual.