A Guide to Novated Leases That You Can Understand

Rapid Finance on 22 December 2014

If you’re an employee looking to purchase a vehicle using salary packaging, it’s okay to not know what type of car loan is best for you. It’s okay to have not heard of a Novated Lease, and it’s okay to ask whether or not this type of car finance is the right option.

Our guide to Novated Leases should help answer some - or all - of your questions.

Novated Leases, Explained

In simple terms, a Novated Lease is a type of car finance for employees who want to purchase a vehicle as part of their salary package.

Under a Novation Lease, there are three people who must come together to initiate the loan, and two documents that must be signed.

The three-way agreement is made between the employee (the client), their employer and a lender. Before any money can exchange hands, the employee must sign a Finance Lease agreement, and both the employee and their employer must sign a Novation Agreement.

Under the Novation Agreement, the employer agrees to make payments for their employee’s chosen vehicle through ‘salary sacrificing’ – meaning it is taken out of the employee’s pre-tax salary. ‘Salary sacrificing’ can also be used to finance some or all of the running costs of the vehicle, which is one of the many benefits of a Novated Lease.

Read more on whether you should salary sacrifice to buy or lease a car.

Who is a Novated Lease Most Suitable For?

Novated Leases are best for employees who wish to finance a vehicle through salary packaging. This three-way agreement has many benefits for employees with remuneration packages, not least of which is the option to choose the car they want.

Additionally, since finance for the vehicle is taken from the employee’s pre-tax salary, Novated Leases can result in significant tax benefits for the client.

Read more about Novated Leases to see if they might be the right loan for you. Or, if you are after a more standard car loan, read more about secured car loans.

For help finding the right car loan, contact our expert team on 1300 467 274.