What is chattel mortgage?

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Chattel mortgage is a legal term that refers to a type of loan agreement where movable personal property, known as chattels, is used as collateral for a loan. This article will delve into the concept of chattel mortgage, exploring its definition, key features, advantages, and disadvantages.

Definition and Key Features

A chattel mortgage is a financial arrangement in which a borrower pledges movable personal property, such as vehicles, equipment, or inventory, as security for a loan. The lender holds a lien on the chattel until the loan is fully repaid. If the borrower defaults on the loan, the lender has the right to seize and sell the chattel to recover the outstanding debt.

One of the key features of a chattel mortgage is that the ownership of the chattel remains with the borrower during the loan term. This means that the borrower can continue to use and benefit from the chattel as long as the loan is being repaid. Once the loan is fully paid off, the lender releases the lien, and the borrower becomes the sole owner of the chattel.

Advantages of Chattel Mortgage

Flexible Eligibility: Chattel mortgages are often more accessible than traditional loans because they are secured by the movable property itself. This means that borrowers with limited credit history or lower credit scores may still be eligible for a chattel mortgage.

Lower Interest Rates: Since chattel mortgages are secured loans, lenders may offer lower interest rates compared to unsecured loans. This can result in significant cost savings for borrowers over the life of the loan.

Tax Benefits: In some jurisdictions, borrowers may be able to claim tax deductions on the interest paid on a chattel mortgage. This can provide additional financial benefits for businesses using chattel mortgages to finance their assets.

Disadvantages of Chattel Mortgage

Potential Loss of Collateral: If a borrower defaults on a chattel mortgage, the lender has the right to seize and sell the chattel to recover the outstanding debt. This means that borrowers run the risk of losing their valuable assets if they are unable to make the loan repayments.

Higher Initial Costs: Chattel mortgages often require a larger upfront payment or deposit compared to other types of loans. This can be a barrier for borrowers who do not have significant cash reserves.

Depreciation Risk: Some chattels, such as vehicles or equipment, may depreciate in value over time. If the value of the chattel decreases significantly, the borrower may still be liable for the full loan amount, even if the sale of the chattel does not cover the outstanding debt.


Chattel mortgage is a loan agreement where movable personal property is used as collateral. It offers flexibility, lower interest rates, and potential tax benefits. However, borrowers should be aware of the risks involved, such as potential loss of collateral, higher initial costs, and depreciation risk. It is important to carefully consider these factors before entering into a chattel mortgage agreement.


– Investopedia: www.investopedia.com/terms/c/chattelmortgage.asp
– LegalMatch: www.legalmatch.com/law-library/article/chattel-mortgages.html
– Small Business Loans Australia: www.smallbusinessloansaustralia.com/chattel-mortgage