Definition Definition

What Is Chattel Loan? Understanding Chattel Loans with Practical Example

What is Chattel Loan?

A Chattel Loan is a type of mortgage loan that is used to move personal possessions such as a modular home or industrial equipment. The asset, or chattel, is used to secure loans, and the creditor owns a portion of it. The car or machinery is referred to as chattel, and the debt is referred to as a mortgage. 

A chattel mortgage is distinct from a traditional mortgage, which is supported by a claim on a fixed asset such as a home or office premises. A chattel mortgage is a useful solution among business owners and shareholders when it relates to car and machinery financing. It's referred to as an automobile or equipment loan by some lenders.

Understanding Chattel Loans

A chattel mortgage is structured similarly to a standard fixed-rate housing conventional mortgage. A finance company will use the automobile or equipment you purchase as collateral for your mortgage. Unlike a Lease Agreement or a Financing Lease, a Machinery Loan provides you immediate ownership and allows you to repay the loan using the revenue generated by the item in your firm. 

If you don't make your payments, your lending company may decide to seize your vehicle or property. The required down payment might be as minimal as 5%. These loans normally have a maximum term of 20 years. Rates of interest on these loans are usually 3-4 percent higher than on standard home loans.

Chattel loans have their own set of laws that vary depending on the type of asset. Chattel house loans, for example, must be published in a public registry because then third-partyers that use their home as collateral for just another loan. Security contracts for airplanes are normally registered with the Federal Aviation Administration's Aircraft Registration Branch.

Practical Example

If someone is a contractor working on a remodeling or building project, you'll need vehicles to transport goods and building materials. One element of a chattel mortgage that distinguishes it from a potential borrower is that your lending institution company will protect the loan with the 'chattel,' or car you want to acquire. It may be a skid loader, a van, or something else entirely.

In Sentences

  • The term chattel loans are basically used to indicate a type of loan that is widely known for equipment financing.


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