The lending market, like so many sectors, has its own terminology. Specific terms, wording and references which, understandably, may be confusing for those seeking vehicle funding. Some of those terms which may cause confusion are Leasing and Novated Lease.
Is Vehicle Leasing like hiring a car?
What does ‘novated’ mean?
As specialists in motor vehicle finance, Jade Car Loans are experts and provide a simple explainer on the difference between Vehicle Leasing and Novated Lease. An overview of the key features of each of these credit facilities to clarify the difference and assist vehicle buyers select the funding product that is best suited to their requirements.
Comparing Leasing and Novated Lease
Both these terms refer to credit products which can be used to fund motor vehicle purchases not a form of vehicle hire or rental. They each have specific purposes. Lease is essentially for a commercial operator and Novated Leasing for individuals, in collaboration with their employer.
Novated Lease is also known as Salary Sacrificing. The basic difference between a Vehicle Lease and Salary Sacrificing is that a Lease is a credit facility for businesses to finance motor vehicles for their operation. Salary Sacrificing is an arrangement which enables an employee to have a motor vehicle purchased for them by their employer as part of their salary package.
Vehicle Leasing Explainer
A very popular form of vehicle credit, which can be used by all types of commercial enterprises that use the accruals method of accounting, for funding all types of motor vehicles. The business operator selects the vehicle and arranges the purchase price with the seller. The lender then acquires the vehicle and leases it back to the operator.
The lender holds ownership title over the credit term while the operator is responsible for the running costs including registration and insurance. The operator makes monthly payments to repay the funding and a residual is typically included.
When all the payments, including the residual are finalised, ownership is transferred to the business operation. Attractive rates and tax deductions are a feature of this credit facility. For full details, refer to our webpage for more information on car leasing.
Novated Lease with Salary Sacrificing Explainer
This form of vehicle funding is a vehicle salary sacrificing or salary packaging product. It involves an employer buying a vehicle for an employee and the employee sacrificing part of their salary to cover the payments and other expenses. The employee receives less gross salary but receiving a benefit by reducing pre-tax income and hence tax payable.
The employee essentially gets to choose the vehicle they want, subject to confirmation with the employer re the costings, etc. Employees wanting to work out estimates on how much they may need to sacrifice for vehicles at different prices can use our Car Finance Calculator. Use the interest rate we are currently displaying as a guide to generate rough estimates on possible repayments. Other costs for the vehicle which would also be deducted from salary would need to be accounted for in addition to the funding payments.
With this credit facility, the loan commitment is ‘novated’ or transferred, from the employee to the employer. The employer makes the leasing payments and receives the relevant tax deductions with GST and the monthly payments. FBT may be payable and the employer may include this expense in the employee’s sacrificed salary. The employer deducts the agreed total costs from the employee’s pre-tax income.
When all the payments are finalised, the ownership of the vehicle is transferred to the employee. If the employee leaves that company while money is still owed on the vehicle, an agreement would need to be reached between employee and employer.
Those interested can review the Australian Taxation Office details.
Applying for Novated Lease Salary Sacrificing
Salary sacrificing is typically initiated by an employee but an employer may raise the issue with an employee as an incentive or bonus. If salary sacrificing auto credit is of interest to you, first speak with your employer. You will need their agreement in principle with the concept before proceeding. When agreement is reached with the employer, contact Jade to speak with one of our consultants about sourcing quotes from the right lender.
With three parties involved in the credit arrangement – lender, employee and employer, this can be a more complex form of funding. As experts in vehicle lending, we have extensive experience in sourcing the best rates and structuring this credit facility to suit individual requirements.
Business owners requiring Leasing can quickly request a quote or proceed to apply online for 24 hour approval. If you still have questions, please feel free to connect with us for all the answers on motor vehicle funding.
To discuss the Leasing and Novated Lease and for quotes, contact Jade Car Loans 1300 000 003 and speak with one of our brokers.
DISCLAIMER: IN REGARD TO MISREPRESENTATIONS AND ERRORS CONTAINED IN THE MATERIAL AS PRESENTED, LIABILITY IS NOT ACCEPTED. THE DETAILS AND CONTENT IS PROVIDED FOR CAR BUYERS AND INDIVIDUALS AND BUSINESS SEEKING FINANCE PURELY AS GENERAL INFORMATION. THIS IS NOT PROVIDED AS THE ONLY SOURCE OF FINANCIAL INFORMATION. ANYONE THAT CONSIDERS THAT NEED FINANCIAL ADVICE ABOUT THEIR SPECIFIC REQUIREMENTS SHOULD SEEK THEIR OWN FINANCIAL ADVISOR.
