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Chattel Mortgage


A Chattel Mortgage is a legal agreement where a personal movable property (the chattel) is used as security for a loan. This means that the lending institution holds a mortgage over the chattel and if the borrower can’t repay the loan, the lender can seize the chattel. The borrower maintains full ownership of the chattel, but it serves as a guarantee for the lender until the debt is completely paid off.


The phonetics of the keyword “Chattel Mortgage” can be transcribed as follows: /ˈtʃætl ˈmɔːrɡɪdʒ/

Key Takeaways

  1. A chattel mortgage is a loan arrangement

    Chattel Mortgage is a type of loan arrangement where movable personal property, or chattel, is used as security for the loan. This means that lenders can claim the property if the borrower fails to repay the loan.

  2. Common in business lending

    This kind of mortgage is commonly used in business lending, particularly for the purchase of cars, machinery, and other equipment. The chattel property, like vehicles or equipment, serves as collateral and can be repossessed by the lender in case of default.

  3. Tax benefits

    Chattel Mortgages often come with tax benefits for businesses, which is a significant reason for their popularity. If a business uses chattel property primarily for earning income, the interest charges on the loan and depreciation may be tax-deductible.


A chattel mortgage is a critical term in business and finance as it refers to a loan arrangement in which an item of movable personal property acts as security for a loan. The significant advantage of the chattel mortgage, a legal term in English-speaking countries, is that the lender’s risk is reduced since the borrower agrees to use their personal property or assets as collateral. The borrower can continue to use this asset while repaying the loan, and the arrangement is legally binding. If the borrower is unable to make the agreed repayments, the lender has the right to take possession of the asset used as security. Hence, knowing about chattel mortgages is vital for borrowers and lenders alike as it influences loan terms, risk levels, and borrowing capacity.


The purpose of a chattel mortgage in the world of finance and business primarily serves as a method of securing a loan agreement. This type of mortgage is a loan arrangement wherein an item of movable personal property, which is referred to as chattel, is used as security for the loan’s repayment. Essentially, this means that the lender holds an interest in the movable property until the loan is fully paid off. Businesses often use this form of loan to purchase or secure expensive equipment needed for their operation. The equipment itself then serves as the ‘chattel’ and the security for the loan. An important feature of a chattel mortgage is that it allows the borrower to maintain the possession and use of the collateral while repaying the loan. This is crucial for businesses since they can continue to generate income and operate normally using the equipment they acquired through the chattel mortgage. Furthermore, chattel mortgages are seen as tax-efficient methods of financing business needs in many jurisdictions. For instance, businesses can often claim tax deductions for interest payments and depreciation of the chattel, providing a useful incentive to opt for chattel mortgages when purchasing equipment.


1. Vehicle Financing: Suppose a person seeks to buy a new car but doesn’t have the total cash amount available. He approaches a bank or a finance company for a loan. The finance company will provide the loan to buy the car, in return for holding the car as chattel under a chattel mortgage agreement until the loan is paid off. If the buyer defaults on the loan, the lender has the right to seize the car and sell it to recover outstanding debt. 2. Farm Equipment Financing: A farmer wants to acquire new machinery to improve productivity, but cannot afford to make the full payment upfront. The farmer can take a loan using the machinery itself as collateral under a chattel mortgage. If the farmer fails to repay the loan as agreed, the lender can repossess the machinery and sell it to recover their money. 3. Office Equipment Financing: A small business owner needs to purchase office equipment such as computers, printers, and furniture. The business owner takes out a chattel mortgage with a bank, using the acquired equipment as the chattel. This means that while the company gets to use the office equipment right away, if they default on the loan payments, the bank has the right to seize and sell the office equipment to recover the debt.

Frequently Asked Questions(FAQ)

What is a Chattel Mortgage?
A Chattel Mortgage is a legal contract where a person borrows money to buy movable personal property (chattel) and secures the loan with the chattel as the collateral. If the borrower fails to make the necessary payments, the lender has the right to repossess the chattel.
What can be considered as chattel in a Chattel Mortgage?
Chattels are movable personal properties. This includes items like vehicles, machinery, equipment, and even livestock. Essentially, anything that is not considered real estate can be regarded as chattel.
Who typically uses Chattel Mortgages?
Chattel Mortgage is commonly used by businesses for the purchase or lease of business equipment. However, it can also be used by individuals, typically for the purchase of vehicles.
How does a Chattel Mortgage work?
After the borrower has received the loan to purchase the chattel, the lender holds the mortgage over the chattel until the loan has been fully paid off. The borrower maintains possession and usage rights of the chattel throughout the repayment period. If the borrower defaults, the lender can repossess and sell the chattel to recoup the loan amount.
What is the benefit of a Chattel Mortgage?
A major benefit of a Chattel Mortgage is that the borrower can use the item while repaying the loan. Furthermore, interest rates for Chattel Mortgages could be lower than unsecured loans since the loan is secured by the chattel.
Are there any tax benefits associated with Chattel Mortgages?
Yes, particularly for businesses. The interest payments and the depreciation of the chattel can potentially be used as tax deductions. However, it’s recommended to seek advice from a certified accountant to understand the full implications.
What happens if I default on a Chattel Mortgage?
If you default on a Chattel Mortgage, the lender has the right to repossess the chattel to recover the outstanding loan amount. The specifics of what constitutes a default will be laid out in your mortgage contract.
Can a Chattel Mortgage be paid off early?
Depending on the terms and conditions of your chattel mortgage agreement, you may be able to pay off the mortgage early. Some agreements may include fees for early repayments, so reviewing the contract is advised before making a decision.

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