Are you looking for the best financing option to buy a vehicle, equipment, or machinery? Consider a goods loan, also known as a chattel mortgage. With a wide range of benefits, this type of loan is becoming increasingly popular among business owners.
Let’s show you why it might be the perfect financing solution for your needs.
What Is a Goods Loan/Chattel Mortgage/Secured Loan?
A goods loan, also known as a chattel mortgage or secured loan, is a type of loan used to finance the purchase of items like vehicles, business equipment, or machinery.
The lender holds a lien on the item you’re buying until you pay off the loan, so it acts as collateral. This makes a goods loan ideal for businesses or individuals who want complete ownership of a new asset right away, without tying up all their cash.
How Does a Chattel Mortgage Work?
Now that you’re curious about how this type of loan here’s the breakdown:
- You pick out the item you want to buy.
- You then go to a bank or finance company that will act as your lender, and apply for a goods loan.
- The lender checks out your application and, if all looks good, they give you the money to buy the item.
- You take ownership of the item right away and the lender holds a lien on it until you pay off the loan.
- You make monthly payments to the lender until the loan is paid off in full.
- Once you’ve paid back the loan in full, the lender releases the lien.
It is important to note that the interest rate, loan term, and monthly payment amounts may differ from lender to lender. And if you fail to repay the loan, the lender has the right to seize the item.
What Are the Benefits?
Whether you’re a thriving businessman or a newbie, there are multiple benefits that you can get with a chattel mortgage. These include:
1. Low Monthly Payments
With a chattel mortgage, you might have lower monthly payments compared to high-interest debts. That’s because of the low interest rates that come with these loans.
For example, the average interest rate for a personal loan is 10.56%, while that of a chattel mortgage is between 4% and 6%. This apparently small difference can result in significant savings on monthly payments over the life of the loan.
2. Tax Benefits
In addition to low monthly payments, you might also be able to enjoy tax benefits with a chattel mortgage. These include:
- Interest deductibility: In many countries, the interest paid on a goods loan is fully tax-deductible, allowing you to save money on your returns. This can be a significant benefit, especially if you have a high interest rate on your loan.
- Capital allowances: In some countries, you may be able to claim capital allowances on the depreciation of the asset being financed. This can help you save money on taxes by reducing your taxable income.
3. Improved Cash Flow
By financing the purchase of an item through a goods loan, you can preserve your cash and liquid assets for other uses, improving your overall cash flow.
4. Flexible Repayment Options
You can choose a repayment plan that works best for you, with long loan terms and other flexible options such as:
- Balloon payments: You can choose to make lower monthly payments for a specified period of time, and then make a lump-sum payment at the end of the loan term.
- Variable interest rates: Some goods loan providers offer variable interest rates, which can change based on market conditions.
- Early repayments: Sometimes, you can repay the loan early without penalty, allowing you to save money on interest charges and become debt-free sooner.
- Loan refinancing: You may be able to refinance your goods loan to take advantage of lower interest rates or better loan terms.
5. Quick Approval Process
The average time for a goods loan approval is from a few hours to a few days depending on the lender you’ve chosen. This is very quick compared to some other types of loans, making a goods loan an excellent option if you’re short on time.
Goods Loan Vs. Hire Purchase Agreement
The main difference between a goods loan and a hire purchase agreement has to do with asset ownership. With a goods loan, you own the item from the start and make payments on the loan until it’s fully paid off.
In a hire purchase agreement, on the other hand, you rent the item for an agreed-upon period of time but the ownership lies with the lender. Once the loan term ends and you’ve paid all your installments, you have the option to purchase the item for a previously agreed-upon price or return it.
A secured loan can be a smart investment for businesses looking to grow and expand. With the right lender and loan terms, it can help your business purchase new equipment without tying up your cash.
But before making a decision, it’s important to consider your business’s financial situation and determine whether an alternative financing option — such as a hire purchase — might be a better option for you.