Leasing and chattel mortgage are two common forms of financing for individuals and businesses looking to acquire assets such as vehicles, equipment, and machinery. Here, we will explore the primary differences between these two financing options.
Main Differences between Lease and Chattel Mortgage:
I. Definition Leasing is a type of financing in which the borrower (lessee) pays for the use of an asset for a set period of time, typically 2 to 5 years. At the end of the lease term, the lessee can either return the asset to the lessor or purchase it for a predetermined price. On the other hand, a chattel mortgage is a type of secured loan in which the borrower (mortgagor) uses an asset as collateral for the loan.
II. Ownership In a lease, ownership of the asset remains with the lessor, while the lessee simply has the right to use it. In a chattel mortgage, ownership of the asset is transferred to the mortgagor, who holds the title to the asset.
III. Monthly Payments Leasing typically involves lower monthly payments than a chattel mortgage, as the lessee is only paying for the use of the asset and not the entire cost of ownership. In a chattel mortgage, the borrower is making payments to own the asset outright, and therefore the monthly payments tend to be higher.
IV. Taxation Leasing may provide some tax benefits to businesses, as lease payments can be deducted as a business expense. In a chattel mortgage, the interest on the loan and depreciation on the asset may be tax deductible.
V. End of Term Options At the end of a lease term, the lessee has the option to return the asset to the lessor, purchase the asset for a predetermined price, or extend the lease term. In a chattel mortgage, the borrower owns the asset outright at the end of the loan term and can either keep or sell the asset.
In summary, leasing and chattel mortgage are two financing options that offer different benefits and drawbacks. Leasing is more flexible and has lower monthly payments, but ownership of the asset remains with the lessor. Chattel mortgage, on the other hand, offers ownership of the asset and potential tax benefits, but has higher monthly payments.