As we all know in the traditional setup, a loan is given to a person based on the security he/she provides which is usually in the form of land, building, house etc, but a chattel mortgage differs from a conventional mortgage loans in which the loan is secured by a spleen on the real property.
Chattel mortgages are secured loans provided to a personal movable property to an individual or a business person and the lender holds an interest in it.
A loan is extended to a borrower secured by ‘chattel (vehicle)’, in which the bank holds a right until the entire amount is repaid. Usually, the rate of interest charged on such mortgages is higher and they come with shorter terms.
Vehicles like cars, airplanes, boats, mobile homes or trailers, electronic items, and appliances, farm equipment, and modular homes are good examples of assets often financed using chattel mortgages and in chattel mortgage the lender can take possession of the property that serves as security when a conventional loan is in default. The legal relationship is inverted with a chattel mortgage.
The lender does not hold a lien against the movable property, the chattel. Instead, ownership of the chattel conditionally transfers to him until the loan has been satisfied. The borrower resumes full control and ownership of the chattel at that point.
Businesses often use chattel mortgages to purchase new equipment. Heavy machinery has a long lifespan, and its purchase can be financed over a period of time by the seller, but the seller will want to keep a security interest in the machinery in the event of default.
The most important advantage to a mortgage company is that assets which are kept as security are movable and can be sold off quickly in an event of a default. Good news is that Toyota Fleet Management offer a maintained chattel mortgage which includes running costs plus the option to add roadside assist, a fuel card and comprehensive motor vehicle insurance. This option is great for business owners as it is a smart way to purchase vehicles with potential tax benefits built in.
Chattel mortgages are potentially good option for someone looking to finance a machinery or an equipment. Though these loans are smaller than conventional loans and tend to have higher interest rates with shorter in term and can be quickly paid off.
– Ramya H P