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Also known as a chattel mortgage or chattel mortgage loan, a chattel loan is a loan contract in which the lender extends a loan to a borrower to purchase assets that are not considered fixed properties. In return, the purchased items are held as collateral for the duration of the loan. Once the chattel loan is paid in full, the lender releases any claim to the property, and the owner is free to utilize the holdings in any way he or she desires.
The concept of a chattel loan is common in many nations around the world where the legal system is greatly influenced by English law. For example, many companies in Australia make use of this lending concept, using the device to manage the purchase of commercial vehicles, company cars, and various types of equipment that are necessary for the ongoing operation of the businesses. This approach makes it possible to still obtained secured financing and the lower interest rate that sometimes comes with a secured loan, while avoiding the necessity of pledging other company assets as collateral.
Another application of a chattel loan is in securing financing for a mobile home. Rather than using the land where the mobile home will reside as the collateral, the movable dwelling itself serves as the security for the loan. This can be especially important if the buyer does not own any other asset that is considered acceptable collateral, and can make the task of securing an affordable dwelling much easier.
In the broadest sense, a chattel loan is considered one type of secured loan. The difference between this approach and other forms of secured transactions has to do with what asset is held as collateral. If the collateral is the item that is purchased with the proceeds from the loan, then it can be properly considered a chattel loan. If the asset held as collateral is some other asset owned by the borrower, it is still a secured loan, but does not meet the criteria for a chattel loan.
Laws relating to how a chattel loan can be structured and what type of assets can be purchased and held as collateral under this type of lending option will vary from one country to another. This method may be used to acquire personal assets like jewelry that carries a certain level of market value, or similar assets that are likely to hold their value for the duration of the loan period. In determining what type of purchases can be made using a chattel loan, it is often helpful to determine what is considered movable personal property in the local area.