Chattel Mortgage Contract: The Clauses to Read Before You Sign
What a chattel mortgage contract says about security, insurance, default, early payout and variation, and the clauses to question before you sign.
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Chattel Mortgage Contract · Clauses · Before You Sign
The ute is detailed and parked out front, and the finance manager slides a thick contract across the dealership counter with a pen on top. Most business owners sign it in a few minutes and find out what it says later. These are the clauses worth reading first, and what each one lets the lender do.
Quick Answer
A chattel mortgage contract sets out the goods, the repayments and any balloon, the interest and fees, the lender's security interest, insurance and use conditions, what counts as default and how you can end the loan early. The clauses that matter most when plans change are default, early termination and variation. The product itself is explained on our chattel mortgage page, and the lender's registration on the PPSR is what makes the goods its security.
Also called: chattel mortgage agreement, goods mortgage agreement, equipment finance contract. They are the same document; "goods mortgage" is the older name some lenders still print on the contract.
What is in a chattel mortgage contract?
A chattel mortgage contract is the signed agreement that names the goods you are buying, the amount financed, the repayments, any balloon, the interest rate, the fees and the term, together with the lender's security over the goods. It usually comes in two parts: a schedule or offer document with the numbers for your deal, and a booklet of general terms and conditions that applies to every borrower with that lender.
The goods schedule names what is financed, down to the make, model and serial or VIN number. Check it against the tax invoice line by line, because the lender's security attaches to the goods described there. If the dealer adds a canopy, a toolbox or a tow pack after the schedule is printed, ask for the schedule to be reissued so the finance covers what you are actually paying for.
The general terms are where most of the clauses in this insight sit. They are long, standard form and rarely changed for an individual borrower, but they are what the lender relies on if something goes wrong. If you want the product basics first, how a chattel mortgage works, what it costs and who it suits are covered in our chattel mortgage guide.
What does the security interest clause let the lender do?
The security interest clause lets the lender register its interest over the goods and enforce it if you default, even though your business owns the goods from the day of purchase. That ownership is what separates a chattel mortgage from a lease or hire purchase. The lender holds a security interest registered on the PPSR, the national Personal Property Securities Register, which tells any later buyer or financier that the goods are not free and clear.
The clause usually says you cannot sell, lend, hire out or give further security over the goods without the lender's written consent. Selling a financed ute privately without paying out the loan is one of the quickest ways to trigger a default, because the registration stays on the vehicle and the buyer's own search will find it.
Who signs the contract matters here too: the borrowing entity, any guarantors, and whose name the goods sit in. That is covered in which entity should sign a chattel mortgage, so it is not repeated here.
What insurance and use conditions are in the contract?
The insurance and use clauses require you to keep the goods comprehensively insured, in good repair and used for the business purpose stated in your application. Most contracts ask for the lender to be noted on the policy as an interested party, so the insurer pays the lender first if the goods are written off.
In deals I've seen, the condition that catches owners out is a lapse rather than a claim. A policy that fails to renew on an expired card, or a switch of insurer without telling the lender, can put the contract in breach even when nothing has happened to the goods. Trucks and plant often carry more specific cover requirements, and truck finance insurance requirements walks through what lenders typically ask for on a heavy vehicle.
- Location. Some contracts name where the goods are kept, or ask for notice if they leave the state for an extended period.
- Use. Business use only, and no hiring the goods to a third party without consent.
- Maintenance. Keep the goods serviced and keep the records, because they support resale value and any insurance claim.
- Information. Tell the lender if your address, trading entity or ownership changes.
What counts as a default under a chattel mortgage?
A default under a chattel mortgage is any event the contract lists as giving the lender the right to act on its security, and a missed repayment is only one of them. Most contracts list a broader set of events of default, and the list is worth reading line by line before you sign.
- Missed or dishonoured repayments. The most common trigger, usually after a reminder and a chance to catch up.
- Insurance lapsing. Or cover that is not in the form the contract requires.
- Dealing with the goods. Selling, moving or giving security over them without consent.
- Insolvency events. Administration or liquidation of the borrower, or bankruptcy of a guarantor.
- Incorrect information. Anything in the application that turns out to be materially wrong.
- Cross default. A default on another facility treated as a default on this one.
What is a cross default clause?
A cross default clause treats a default on another loan, with the same lender or sometimes any lender, as a default on this contract. If the business has several facilities, one problem can put all of them in default at once, so it is worth asking how far the clause reaches.
Standard clause
- A missed repayment is a default after notice
- Comprehensive insurance with the lender noted
- No sale of the goods without consent
- A payout figure provided on request
Clause worth a second read
- Default on any debt, with any lender
- Default for any change the lender decides is adverse
- A fee for every reminder letter or call
- Fees or terms the lender can vary without notice
A standard clause worth a second read is one that is common but broader than your deal needs. Asking about it before you sign costs nothing. If a default does happen, the contract and the national security law set out what follows, and before the goods are sold you can generally redeem them by paying the full debt plus the lender's expenses, or reinstate the contract by paying the overdue amount plus expenses. How enforcement and repossession work after that is covered in our insight on missed chattel mortgage repayments and repossession.
How do early termination and payout clauses work?
Early termination and payout clauses set out what it costs to finish the loan before the end of its term, and that cost depends on how the lender priced the deal. You ask for a payout figure, pay it, and the lender releases the goods and removes its registration.
What sits inside the payout figure varies. On a fixed rate contract the lender may charge break costs based on the interest it expected to earn over the rest of the term; the formula varies by lender. Others charge an early termination fee or an exit fee, apply a rebate formula for interest not yet earned, or combine more than one. Typical fees around the rate are compared in our chattel mortgage rates and fees guide.
- Is there a formula? A clause that names how the payout is calculated is easier to check than one that refers to "the lender's costs".
- Does the cost reduce over time? Some contracts charge less, or nothing, later in the term.
- What happens to the balloon? Any balloon is part of what you owe, so it is included in the payout.
- Are partial prepayments allowed? Paying down the balance early is not always permitted on a fixed rate.
What protections apply to a business chattel mortgage contract?
A business chattel mortgage has fewer protections than a consumer car loan, but unfair contract term laws still apply, and so does the Banking Code of Practice where the lender is a bank that subscribes to it. Credit used wholly or predominantly for business purposes generally sits outside the National Credit Code, so the consumer hardship and responsible lending rules do not apply in the same way.
The unfair contract terms regime covers standard form contracts with small businesses. At the time of writing, ASIC's unfair contract term protections for small businesses treat a business as small if it has fewer than 100 employees or annual turnover under $10 million, and for financial products the upfront price payable must be no more than $5 million, with interest disregarded. ASIC's examples of terms that may be unfair include excessive default fees for a single missed repayment, and terms that let the lender vary the contract in unspecified ways on short notice.
The Banking Code of Practice includes commitments to small business customers, including notice before a bank enforces. Non-bank lenders are not bound by it. A wider view of what applies to business lending is in business loan protections in Australia. If your contract uses a flat fee for paying out early, how a flat fee early payout works covers that structure, and the same clause logic on a revolving facility is set out in business overdraft letter of offer clauses.
Which chattel mortgage terms can you negotiate?
The terms you can usually negotiate are the commercial ones: deposit, balloon, term, fees, guarantee scope and insurance arrangements, rather than the general terms. Lenders rarely rewrite their standard conditions for one borrower, but the numbers in your schedule are set deal by deal.
How much room you get depends on the strength of the file: trading history, the resale value of the goods and the deposit you are putting in. A stronger file gives more room on the balloon, the term and whether a director's guarantee is needed, which is covered in our guide to director's guarantees.
| Clause | What it usually says | What it means for you | Worth asking about |
|---|---|---|---|
| Goods schedule | Lists the goods by make, model and serial or VIN number | The security attaches to what is listed | Does it match the invoice, including accessories? |
| Repayments and balloon | Sets the repayment amount, frequency, term and any balloon | A larger balloon lowers repayments but leaves a larger final payment | Can the balloon or term change before settlement? |
| Security interest | The lender registers on the PPSR; no sale or further security without consent | You own the goods but cannot deal with them freely | What consent is needed to upgrade or sell early? |
| Insurance | Comprehensive cover with the lender noted | A lapse can be a default | Can you keep your existing insurer? |
| Use and location | Business use, kept at a stated address or region | Moving or hiring out the goods may need consent | Is interstate work allowed without notice? |
| Default | Lists the events of default, often including cross default | More listed events mean more ways to be in default | Is there notice and time to fix it before enforcement? |
| Early termination | Sets the payout and any break cost or fee formula | Finishing early can cost more on some contracts | How is the payout calculated, in writing? |
| Variation | Says when the lender can change fees or terms | A one-sided change clause can be an unfair term | What notice is given, and can you exit without a penalty? |
Get any agreed change in writing before you sign, and keep the signed copy with the tax invoice. If the dealer's finance desk is pushing for a same-day signature, a broker can put the same goods to a range of lenders through our chattel mortgage service, so the contract you sign is one you chose. More owner-focused guides sit in the Business Owners Hub.
A chattel mortgage contract is mostly standard wording, but a handful of clauses decide what happens when plans change: the security interest, insurance and use conditions, the default list, early termination and variation. Read those against your own plans for the goods, ask about anything broader than your deal needs, and get changes in writing before you sign.
Key takeaway: read the default, early termination and variation clauses before you sign, and ask the lender to explain any clause you would not want enforced against you.Frequently Asked Questions
A chattel agreement is the contract for a chattel mortgage, where a business borrows to buy goods such as a vehicle or equipment, owns them from purchase, and gives the lender a security interest over them until the loan is repaid. "Chattel" simply means movable personal property. The product is defined in our chattel mortgage glossary entry.
A chattel mortgage is cancelled by paying it out in full, after which the lender releases its security and discharges its registration on the PPSR. You request a payout figure, which may include break costs or an early termination fee depending on the contract. Ask the lender to confirm in writing once the registration has been removed.
Before signing a chattel mortgage contract, check that the goods schedule matches the invoice, then read the default, early termination, insurance and variation clauses. Those decide what the lender can do if your plans change. Compare the fees with those in our chattel mortgage rates and fees guide, and ask about anything unclear in writing.
A lender can change chattel mortgage terms only as far as the contract allows, and a clause letting it vary terms in unspecified ways on short notice may be an unfair contract term for a small business. Repayments on a fixed rate generally stay as signed. The protections that apply are covered in business loan protections in Australia.
A chattel mortgage contract is not the same as a hire purchase agreement, because under a chattel mortgage the business owns the goods from the start, while under hire purchase the financier owns them until the final payment. The contracts read alike in places, but ownership changes the tax treatment and what happens at the end of the term. The full comparison is in chattel mortgage vs lease vs hire purchase.
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