If you’re wondering what a chattel mortgage is, you’re not alone! A chattel mortgage happens to be a versatile financial offering that could serve one immaculately for personal or business purposes. However, it can also be rather tricky and confusing without a proper grasp of the fundamental nature of the whole loan arrangement. As a result, not many institutions specialize in chattel mortgages, and many borrowers tend to steer clear for the same reason. 

But we’ve got you covered! This piece offers an exposition of chattel mortgages as a viable and workable option for borrowers and lenders alike.

What Is a Chattel Mortgage?

Simply put, chattel mortgages are loans that are obtained to buy items that can be considered non-stationary or movable, which encompasses any property that is not acquired with the land it is situated on. In a hypothetical scenario, Farmer A approaches Bank B for a chattel mortgage to buy a tractor. B approves the loan and automatically has a lien over the tractor. This gives them the right to take possession of the property to sell off or keep for lease in case A defaults on the repayment.

Types of Chattel Mortgages

Having established what a chattel mortgage is, the next item on the agenda is what a chattel mortgage loan covers. The kinds of chattel mortgages are based on the chattels for which these loans are taken. Some of the most common kinds include:

• Manufactured Homes: These are non-stationary houses built on impermanent foundations, thus making them unqualified for traditional mortgages. In the US, they were referred to as mobile homes until 1976 when the Department of Housing and Urban Development updated their housing standards. Such homes can be easily relocated and are one of the most commonly mortgaged chattels.
• Equipment: Many businesses and farms use chattel mortgages as an avenue to procure expensive heavy equipment such as production machines, tractors, and cranes. The equipment is often earmarked as essentials for the business and is usually a strategic purchase with high projected ROI.
• Vehicles: Vehicles, such as cars, trucks, and even yachts, can also be purchased with chattel mortgages. They can be either for business purposes or personal use.  

Features of a Chattel Mortgage

1. Purpose: The most distinctive feature of chattel mortgages is that they are taken out on chattel only, which becomes the collateral for the loan.
2. Amount: Compared to traditional mortgage loans, chattel loans are often smaller. This is because they are usually taken as one-off loans for specific purposes.
3. Rate: Chattel mortgages are usually left to the discretion of the bank or loan service provider according to the plans it offers.
4. Duration: Chattel mortgage loans are usually short-term loans, with some not even being up to a year in length. This has a bearing on the higher interest rates and bigger monthly payments compared to traditional loans.
5. Mortgage Lending Process: Chattel mortgage lending processes are sometimes different from traditional loans due to varying criteria for qualification. The processing fees are also usually lower compared to traditional loans.

Chattel Mortgages vs. Similar Concepts

• Chattel Mortgages vs. Hire Purchase: Chattel mortgages are very similar to hire purchase agreements due to their structures. However, the chief difference is that a hire purchase is not a loan. Rather, it involves a rental of property from the creditor with an option to permanently own the property after completing a certain payment. Unlike in a hire purchase, the borrower of a chattel mortgage is the legal owner of the property. Still, the chattel mortgage lender holds a lien over the acquired chattel until full repayment.
• Chattel Mortgages vs. Traditional Mortgages: The main difference between chattel mortgages and traditional mortgages is the property involved. Chattel mortgages are reserved for movable property, while traditional mortgages cater to immovable property (both the building and the land it is built on).

Benefits of Chattel Mortgages

With a clear idea of what a chattel loan is, it has become clear that this lending arrangement is designed to benefit chattel mortgage lenders and their customers in many ways. Some of the advantages include:

• Ease of Recovery: Chattel mortgages are easier for lenders to recover compared to traditional mortgages. This is because the lender holds a lien over movable property, which is usually more liquid compared to stationary property.
• Faster Servicing: The loan duration is often favorable to lenders and borrowers alike. Lenders are able to recoup their full principal and interest within a shorter period. At the same time, borrowers also get to offset their debt faster.  
• Better Accessibility: Chattel loan services have comparatively low processing fees, which makes the lending process easier and more accessible to customers.

Conclusion

All in all, chattel mortgages are straightforward enough to be regarded as a variation of traditional mortgages. They have their benefits but also their intricacies. So the most important step before entering a chattel loan agreement is to do your due diligence.

The good news is that today’s technology helps both lenders and borrowers access novel financing options, with Tarya Fintech being a leader in the field.