Whether you’re eyeing off a Tesla or upgrading your family car, there are a few ways to finance your new wheels – and each can have a different impact on your home loan application.
One option is a novated lease – a three-way deal between you, your employer and a leasing company that allows you to pay for your car (and often its running costs) from your pre-tax salary.
It can be a viable option to manage your car expenses and potentially save on tax, but it’s not for everyone. Like any form of finance, it’s good to know how it’ll influence your overall financial picture (especially if you’re planning to buy a home soon).
So what is a novated lease?
Does a novated lease affect your home loan?
And if you decide to go ahead with one, how does it work?
Tell me more – what is a novated lease?
Your boss (yes, your boss) could help you drive away in your dream car.
A novated lease is a form of salary packaging where your employer makes lease payments on a vehicle using a portion of your pre-tax income. These payments usually cover the car and running costs like insurance, registration, fuel, and maintenance.
If it’s right for you, a novated lease can help reduce your taxable income and save you GST on certain expenses.
But (it’s a big but) your employer needs to offer novated leasing as part of their benefits program.
At Finspo, we partner with Smart, one of Australia’s leading novated lease providers because they’re, well… smart. As one of Australia’s top novated lease providers, they specialise in making the whole “salary-package a car” thing as straightforward as possible.
They already work with thousands of employers nationwide to offer novated leasing, and they’ve built the tools, calculators and guides that make it simple for you to see what you could save.
Curious if your employer is already a Smart partner? Just search your industry or employer’s name here.
If you want the full rundown – how it works, who’s eligible, what happens at the end of the lease – Smart has easy guides and calculators to show you exactly what you could save:
But Finspo, will a novated lease impact my home loan application?
Without a doubt, purchasing a car can impact your home loan application.
Whether you buy a car outright, take out a personal loan or opt for a novated lease, lenders will consider it part of your financial commitments when assessing your application.
Because anything you’re paying off each month can reduce the amount you’re able to borrow. It can also influence your “serviceability” or how much the bank thinks you can comfortably repay.
So if you’re planning to buy a home soon, it’s worth speaking with a mortgage broker before entering into a lease or finance agreement. A broker can model different scenarios to help you understand how your car purchase might affect your home loan options and overall budget.
At Finspo, we understand the nuances of different types of lending, their impact on home loans and have access to over 30 lenders (each lender can treat novated leases slightly differently, so we love options).
So, now you know novated leases can have an implication on your home loan – let’s explore the good news: how they work and the potential savings you could unlock.
How do I know if I’m eligible for a novated lease?
Here’s the clincher: to take out a novated lease, your employer has to have the option available.
Unlike salary sacrificing your super, not every employer offers novated lease. It’s most common in medium-large organisations, government institutions and not-for-profits, while it’s less common in small businesses and startups.
Not sure whether novated leasing is available in your workplace? Explore the industries that commonly provide salary packaging, then search for your employer in the Smart database to see what’s available.You might be surprised to learn they already offer novated leasing and if they don’t you can put forward the benefits and recommend a trusted third-party provider, like Smart.
Smart has more than 25 years’ experience helping their clients’ employees save, across all industries – from corporates, construction, mining and SMEs to government, health, education and not-for-profits.
How does novated leasing work?
It’s a three-way agreement:
- You pick the car you want (new, used or electric)
- Your employer agrees to take money out of your pre-tax salary to cover the lease payments (and in some cases, all your car running costs). In most cases, you’ll make one simple payment per pay cycle to cover everything.
- The leasing company (like Smart) provides the car and handles the finance.
Sounds simple in theory, but it can be quite involved to set up (that’s why it’s good to have a provider like Smart on your side).
Learn more about how novated leasing works.
Benefits of novated leasing
Novated leasing isn’t right for everyone.
The benefits will depend on your situation and the car you want to buy (Smart can help you work out your potential savings).
But if it does work in your favour, these are some of the potential benefits:
- Pay off your car with your pre-tax salary. That’ll lower your taxable income, and therefore, the amount of tax you pay.
- Save on GST. You can avoid paying GST on the car’s purchase price and running costs.
- Set and forget payments. You’ll easily pay off your new car as it’ll be deducted before you have to think about it.
- Simple budgeting. All running costs, including things like fuel, insurance and rego, are bundled into one predictable payment.
- Convenience. If your employer partners with a company like Smart, they manage insurance, rego, servicing and paperwork.
Here’s an example of what you could save
Meet Mia, who earns $90,000 a year and drives around 15,000 km annually. She decides to lease a MG HS Excite Wagon (RRP $34,027) through a novated lease.
Here’s what she saved:
- $3,847 on the purchase price through Smart’s fleet discount.
- $2,558 by not paying GST on the car purchase.
- Around $13,000 in income tax over the 5 year lease term.
- Roughly $4,000 in GST on running costs (like servicing, tyres, fuel/charging and insurance).
That leaves a total savings of around $23,500 over the 5 year lease. Plus, one predictable payment covers all her running costs.
Ready to drive away?
If novated leasing sounds good to you, check whether your employer offers it and explore the resources available through Smart.
And before making any major financial move, especially if a home is on your horizon, it’s a good idea to chat with a Finspo broker.
At Finspo, we can help you:
- Understand how your car finance might affect borrowing capacity.
- Compare home loan options across more than 30 lenders.
- Find a lender that best suits your goals and financial situation.
Because when it comes to big financial decisions like cars and homes, the right advice can make all the difference.
Chat with a Finspo Mortgage Broker
About us
Finspo is an online mortgage broker, offering home loan solutions to clients Australia-wide. Our point of difference is that not only do you get a great Finspo mortgage broker, you also get a proposition supported by cutting-edge technology to give you a five-star mortgage broking experience.
