Chattel mortgage: meaning and how it works on a car loan

Nearly every financed vehicle in the Philippines carries a chattel mortgage, whether bought through a bank, a financing company or a dealer's in-house plan. This guide explains what it means for you as the owner, what it costs at booking, and what to do when the loan ends. One thing changed recently: the old paper chattel mortgage registry at the Registries of Deeds has given way to an online registry, though banks and casas still use the old name.

What does chattel mortgage mean?

A chattel mortgage is a contract where you keep and use movable property but give a lender the right to seize and sell it if you do not pay. "Chattel" means movable personal property, as opposed to land and buildings.

The arrangement dates from the Chattel Mortgage Law, Act No. 1508 of 1906. In 2018 Congress passed the Personal Property Security Act (Republic Act 11057), which repealed Sections 1 to 16 of that old law and now governs these loans. The PPSA calls it a "security interest" rather than a chattel mortgage, but contracts, banks and the LTO still use the familiar term.

Three parties matter:

Why do car and motorcycle loans use a chattel mortgage?

Because the vehicle is the collateral. It lets the lender lend 80-85% of the price without other security: BPI lends up to 85% on a brand-new car, and most other banks up to 80%. You get the vehicle, plates and OR/CR in your name from day one, and the lender gets a legal claim on the vehicle that ranks ahead of other creditors.

For you, this means three practical limits until the loan is paid:

1. You cannot sell or transfer the vehicle without the lender's consent.
2. You must keep comprehensive insurance with the lender as payee. See CTPL and comprehensive insurance.
3. The lender usually keeps the original CR.

How much is the chattel mortgage fee?

There is no single government fee: the "chattel mortgage fee" a bank charges bundles documentary stamp tax, notarial and handling charges, and registration. Security Bank describes its chattel mortgage fee as inclusive of documentary stamp tax, processing and notarial fees, without publishing the amount. Metrobank publishes its breakdown.

PPSR fee to register a new notice

₱380

PPSR fee to register a termination notice

₱0

Documentary stamp tax on the loan (Metrobank)

₱1.50 per ₱200

Metrobank notarial plus handling fee

₱1,800

PPSR fees come from LRA Circular 02-2025, citing Department of Finance Administrative Order 001-2021: ₱380 for a new notice, ₱30 for an amendment, and no fee for a termination notice. PSBank also lists the Registry of Deeds registration fee and an LTO encumbrance fee for out-of-town units among its booking charges. Ask for the breakdown in writing, and see the full cost example in how car loans work.

Where is the chattel mortgage registered?

Since 3 February 2025, security interests over vehicles are registered in the Land Registration Authority's online Personal Property Security Registry (PPSR). Before that, chattel mortgages were registered with the Register of Deeds where the borrower lived.

LRA Circular 02-2025 started the PPSR on 3 February 2025. Circular 03-2025 then let Registries of Deeds keep processing through the old electronic Chattel Mortgage Registry, side by side, only until 29 August 2025. Loans registered in the old registry before the switch can still be searched, amended and cancelled there.

The PPSR indexes notices by the borrower's identification number and, for vehicles, by serial number. That makes it possible to search whether a vehicle has a registered lien before you buy it second-hand.

What does "encumbered" on the CR mean?

It means the LTO record shows the vehicle mortgaged to a named lender. The Certificate of Registration carries an annotation such as "encumbered to" the bank, under LTO rules on annotating chattel mortgages and other encumbrances (Memorandum Circular 96-227). The registered owner is still you.

The annotation is what protects a buyer: anyone checking the CR, or the LTO record, can see the vehicle is not free to sell. It stays there until a cancellation is recorded, even after your last payment. A paid-off loan does not clear the CR by itself. For the parts of the OR/CR, see what OR/CR means.

What happens when you fully pay the loan?

You ask the lender for the release documents, then have the encumbrance cancelled at the LTO so you get a clean CR. Many owners skip the second step and only find out when they try to sell.

1. 1

   Make the last payment

   Ask the lender for a statement of full payment and when the release documents will be ready.

2. 2

   Collect the release

   Get the release of chattel mortgage, or a PPSR termination notice, plus the original CR and other loan documents the bank held.

3. 3

   Record the release

   For older loans, the release is recorded at the Registry of Deeds where the mortgage was registered. PPSR terminations are filed online by the lender.

4. 4

   Cancel the annotation at the LTO

   Bring the release, original CR, latest OR and IDs to the LTO office. The vehicle may need inspection.

5. 5

   Get the new CR

   The LTO issues a CR without the encumbrance. Check that the bank's name is gone before leaving.

Exact requirements and LTO fees for cancelling an annotation vary by office, and we could not find a current official fee schedule. Call your LTO district office first, and ask the lender which registry its mortgage used.

Can you sell or transfer a mortgaged car?

Not freely: you need the lender's written consent, or you must pay off the loan first. The usual routes are:

1. Pay off the balance, then sell. Get the release, cancel the encumbrance, and transfer ownership normally. This is the cleanest option. See transfer of ownership at the LTO.
2. Buyer pays the bank directly. The buyer's money settles the loan at the bank, the bank issues the release, and the transfer follows.
3. Formal assumption of the loan. Some lenders let a buyer take over the loan after their own credit check. The lender must approve it in writing.

Informal "pasalo" or "assume balance" deals, where a buyer takes the car and keeps paying under your name, are risky for both sides. The loan and the car stay in your name, so missed payments and traffic violations remain your problem, while the buyer has no title. Article 319 of the Revised Penal Code also penalises selling mortgaged property without the lender's written consent. That article was written around the old Chattel Mortgage Law, and we found no court ruling yet on how it applies to liens under the PPSA.

What happens if you stop paying: repossession

If you default, the lender can take back the vehicle and sell it, and you may still owe any shortfall. Under the PPSA:

• The lender may repossess without going to court if your contract allows it, but only without a breach of the peace. The law defines that to include entering your home without permission, using violence or intimidation, or bringing a law enforcement officer along when taking the vehicle or confronting you.
• If it cannot repossess peacefully, the lender must ask a court for an expedited hearing and an order for possession.
• The lender must notify you at least 10 days before it sells the vehicle.
• It must account to you for any surplus from the sale. Unless your contract says otherwise, you are liable for any deficiency.

There is one important exception for buyers. Article 1484 of the Civil Code, known as the Recto Law, covers sales of personal property paid in installments to the seller. If the seller forecloses after you miss two or more installments, it cannot then sue you for the unpaid balance. Whether this protects you depends on how the deal is structured: it is aimed at installment sales by the seller, not a straight bank loan. If you are facing repossession, read your contract and get legal advice.

Many borrowers who cannot keep up choose voluntary surrender, or sell with the lender's consent, which can cost less than repossession and auction. Talk to the lender early: banks are usually more flexible before the account goes to collections. To keep payments within reach from the start, run the numbers on the car loan calculator or motorcycle loan calculator.