Definition: Chattel mortgage is a loan extended to an individual or a company on a movable property. Here, the ‘chattel’ or the movable personal property which could be a car or a mobile home can be used as a security to extend the loan.
Description: Chattel mortgages are secured loans attached to a personal movable property which is used to extend the loan to an individual or a business owner. In the traditional setup, a loan is given to a person based on the security he/she provides which is usually in the form of land, house, etc.
But with chattel mortgage, a loan is extended to a borrower secured by ‘chattel’, in which the bank holds a lien until the entire amount is repaid. Usually, the rate of interest levied on such mortgages is lower.
Chattel mortgage generally carries a lower rate of interest, flexible payment structure, and thus proves to be better especially for business owners.
Let’s understand chattel mortgage with the help of an example. If you are a contractor involved in repairing job or construction then you would need a vehicle to carry the goods as well as construction material.
One feature of chattel mortgage which differs from consumer loan is that your bank or the mortgage company will secure the loan using the ‘chattel’ or the vehicle which you are planning to purchase. It could be a tow truck or mini-van etc.
The most important advantage to a mortgage company is that assets which are kept as security are movable and can be sold off quickly in an event of a default. Automobiles, yacht or boats, mobile homes or trailers, electronic items, and appliances are all examples of movable property.