Chattel Mortgage loan is a simple way of financing purchases. Here are six rules to consider ensuring that you retain full control over the loan process and how to save money on the loan . A well constructed Chattel Mortgage loan can give you a competitive edge over your competitors
Rule No one
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The Lender takes a security over the assets to be financed. The borrower owns the goods. A Chattel mortgage loan is a very old financial instrument and is well proven and documented. If you are going to finance your house or business it is worth while to do more in-depth research on chattel mortgages and finding more about them.
The difference between a hire purchase loan and a chattel mortgage loan is with a chattel mortgage the ownership of the goods stay with the borrower. The assets must be owned by the client. This is similar to a property mortgage loan. The borrower owns the property and the lender registers an interest in the property by having the mortgage loan registered in the title.
Rule No 2
Understanding retail or a dealer bundled financial loan offering.
The best way to buy goods is to separate the purchase of the goods from the loan financing of them. Obviously not all, but many in-house loan finance deal can be very expensive and they are not transparent. It is often very difficult even if you know what you are looking for in ascertaining how much interest you are paying or the true cost of the goods you are looking for a loan for.
What can happen is that the loan finance is discounted so it appears to have huge savings and then loaded back up into the goods or the other way around. Unless you can unbundle a package from the seller of the dealer be very careful of the package.
What may seem like a bargain may be very expensive if you could unravel the transaction and look at the individual components as stand alones
Handling trade-ins in a dealer or sellers bundled loan solution.
It is important that you do not allow the trade-in to be put into the loan bundles solution. This is where dealers and sellers make a lot of money off you. If there are well established second hand markets for the goods that are being bought, then the buyer needs to ascertain the market value of the goods. Once this is established then negotiate with the trade in value. It will assist you understand the flexibility the seller has on price and how the deal is being structured.
Rule No 3
Get approval for a loan before you buy goods.
No instructions here this is simple, contact a Mortgage Broker to introduce you to a loan lender.
Rule No 4
Understand the conditions and obligations of a Chattel Mortgage loan.
The loan lender has a clear claim to the goods and has many rights and the borrower many obligations. If you are involved in a large transaction you need legal advice to explain the roles and obligations on all parties in the transaction. The cost of the advice could be very cheap compared to the cost of litigation of a loan that goes bad.
The fact that a Chattel mortgage loan is registered with a Government or Financial regulator under a Bill of Sale gives some idea of the legal structure and status of a Chattel Mortgage loan.
As with Hire Purchase loans the terms are normally for 12 or 60months. However in larger transaction they can be for longer periods of time.
Rule No 5
Structure your payment to suit your cash flow.
One of the biggest mistakes when applying for loan finance and particularly with Chattel Mortgage loans is in not knowing the flexibility the lender can have on your specific circumstances. Many businesses and householders are subject to seasonal, variable or contract payments. If you are in this case, ask that the payment of the Chattel Loan fit around the income time you have.
A lender can adjust the loan payment quite easily. There may be an adjustment in interest on the loan but for the convenience of marrying your loan payment to your cash flows it is something that is worth looking at.
At the first interview have the evidence of your receipts on the pattern of income payments over a few years. Bank statements showing deposit and any contracts stating terms and conditions of payment will be necessary for a lender to consider. The reason I suggest doing it at the first interview is it sets the posture and they will be more inclined to look at it.
Rule No 6
Consider a balloon payment to keep your monthly loan payments down.
As with the Hire Purchase loan agreement balloon payments are acceptable. A balloon payment is the last payment in a loan that represents a substantial portion of the original loan. The loan is structured this way to keep your payments low as you are paying only a smaller portion of the loan in your monthly repayments.
However there are some traps:
Ensure that the sale cost of the goods at the end of the loan is at least equal to the balloon payment. This is a common mistake made. It can lead to you having to finance goods that are only half the value of the loan and worse still financing goods that you do not own!
Always seek financial and taxation advise when entering into a legal agreement. A Chattel Agreement is a legal document and you need to obtain the correct financial advice at all times.
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