What is the chattel mortgage?
Have you ever heard of chattel mortgage? You know how it works? If the answer is no, then let’s get to know some basics and how it works and how you can take advantage of it. A chattel mortgage is a type of loan agreement under which the lender may hold any personal chattel property of the borrower as collateral for the loan. Unlike the conventional loan agreement in which the lender places a lien on the property and takes possession of the property if the borrower defaults, the chattel mortgage works in a way that benefits both the lender and the borrower.
Under chattel mortgage, the lender does not place a lien or own the property, but conditionally transfers ownership of the property until the loan is paid off. This conditional transfer is nothing more than a temporary transfer of ownership between the lender and the borrower and the borrower’s rights to the property will resume once the loan is paid off. A chattel mortgage is applicable to all types of personal personal property, such as cars, houses, commercial houses and almost all the items on which you can take the traditional loan.
The only difference between a traditional loan and a furniture loan is in the way the lender works with its default borrower. Many corporate houses consider it to be the best mortgage option as this would pave the way for the free flow of working capital and finance their operational activities on time. Not only corporate houses, but also individuals feel that it is beneficial over conventional mortgage as they do not lose their property in case of default.
Now that we know what a chattel mortgage is, let’s see how it works. Under the chattel mortgage, the lender finances the buyer’s personal property. that is, the lender pays the cost of personal property that the borrower wants to buy or own. Once the property is registered in the borrower’s name, the lender mortgages the property. This mortgage gives the lender a claim on the buyer’s property. If in the event of default by the buyer, the lender waits until the end of the loan agreement and subsequent maturity of the loan, the lender transfers ownership of the property to his name temporarily.
In case the borrower fulfills the obligations established in the loan contract, the lender eliminates the mortgage on the property. Once the lender removes the mortgage, the borrower will obtain all rights to the property from him. The work methodology itself has made it more popular both among companies and individuals.