Novated lease (sometimes referred to as salary sacrifice) allows employees to lease vehicles by deducting payments directly from pre-tax income, thus helping to decrease taxable income and debt-to-income ratio.
Offering a novated lease finance and credit checks can help attract top talent by giving employees access to vehicles they need for work. Before applying, however, it is important to understand its requirements and the credit checks involved.
Your credit score
Novated lease finance and credit checks are an integral part of applying for a novated lease, just as they would be with loans or mortgages. Your financier will run checks to evaluate your ability to make monthly payments; having poor credit can present obstacles; however, there are ways you can increase your chances of approval by improving it.
One of the most crucial elements in managing a lease payment properly is staying current on payments to leasing companies and credit bureaus, so making on-time payments will have an immediate positive effect on your credit score.
Novated leasing is a form of salary packaging that allows you to pay for the running costs of your car from pre-tax income, saving tax and giving you more disposable income to use elsewhere. Furthermore, many novated lease providers can bundle all vehicle running costs into fixed monthly payments, so you know exactly what’s being taken out of your paycheck each month.
Your down payment
Novated lease finance and credit checks can be an effective way to get into the car of your choice, but you must understand exactly what’s involved before signing anything. Fleet discounts and GST savings may seem attractive, but make sure that you understand total package costs as well as any residual value or balloon payment obligations at the end of your novated lease agreement (commonly known as residual value or balloon payments).
Novated leasing is an arrangement between yourself, your employer and the finance company providing your vehicle lease agreement. Your pre-tax salary deductions can pay the purchase price and running costs of the car you select, saving income tax while providing flexibility to use both for personal and professional purposes. Before signing, it’s advisable to consult an accountant or financial adviser.
Your employment history
Novated leasing is an agreement between you, your employer (if it’s part of your employment package) and a car finance company to allow you to buy and operate a car using pre-tax income – an effective form of salary packaging that could save significant taxes over time.
Novated leases offer an efficient solution to consolidating all your car expenses into one convenient monthly payment, including fuel, servicing, registration, tyres, insurance and on-the-road assistance – which may make for more cost-effective arrangements and is seen by some as more cost-efficient.
Under this option, you are not limited to any particular car make or model unless stipulated by your employer. Furthermore, lenders often allow someone else to step in as a guarantor so as to help cover lease payments if you become unable to do it yourself if needed; lenders tend to overlook poor credit more readily when there’s someone to assume more risk for you while still running a credit check for approval purposes – although you will still need a full credit check when getting a novated lease agreement.
Your income
Novated leasing companies often overlook bad credit when you have been making other finance commitments (such as gym memberships, telco bills and Internet providers). Lenders also like seeing evidence of steady employment as it adds another layer of security that you will be able to keep the lease payments.
Novated leases also enable you to salary package the vehicle running costs, meaning they are paid from pre-tax earnings rather than after-tax income – saving Fringe Benefits Tax and creating more disposable cash in your budget.