Can I Change a Car Loan into a Novated Lease?
You can change an existing car loan into a novated lease by refinancing your current loan.
You will need:
- Agreement by your employer to undertake the novated lease arrangement
- Details of your existing car or personal loan
- Current payslips and liabilities
Your employer may have a novated leasing company they prefer to use, or a good car loan broker will match you to a loan that's better than your current loan. Either way, do the math first to make sure you'll be better off after the refinance.
How to choose a novated lease
When you're looking to refinance an existing car loan to take advantage of a novated lease package, you need to pick a financier that your employer is happy to do business with. Many companies have novated leasing arrangements in place for employees, taking advantage of fleet discounts and bulk savings on running costs.
Find out if your employer has an existing novated lease structure. If so, you may need to select a loan option from the selection available through the financier.
If there are no mandatory novated leasing arrangements, you can speak to a car loan broker to compare different offers and find a novated lease that gives you a better deal than your current loan.
What will your car loan break costs be?
It's important to find out what it will cost to payout your existing car loan early before you sign the contracts for the new loan.
There's also an application fee charged to set up your new loan.
If the costs to close your current loan account, plus the setup fees for the novated lease, are less than the amount you will save under the new novated lease contract, then you should go ahead with the new loan.
Otherwise, you will be better off sticking with your current car loan and paying it out as soon as you can.
Choosing your novated lease
Since you are refinancing your car loan, this is an opportunity to have your running costs included in your pre-tax loan payment. Check with your accountant first to see if this will be advantageous to you.
A 'Fully Maintained' novated lease includes your registration, insurance and running costs like tyres, roadside assistance and fuel. The primary benefit here is that you won't pay GST for your fuel and other running costs.
A "Non-maintained" novated lease is just like a regular car loan, except instead of the payments coming from your bank account after you get paid, the loan payments are made by your employer before tax is calculated.
Getting a novated lease approved
Once you've selected a novated leasing option, you'll need to talk to your employer to make the arrangements for payment of the novated lease.
If your employer doesn't have a novated leasing structure in place, you can arrange your novated lease with a financier of your choice, once you have your employer's permission. This can also benefit your employer, in return for a small administrative requirement:
- Providing an effective pay rise without cost to the employer
- The employer doesn't assume risk for the lease contract or the vehicle
- Payments are 'off the balance sheet', deducted directly from your pre-tax income.
Refinancing your car loan
If you don't have 'negative equity' in your car loan, the refinance process will be quick and easy.
"Negative Equity: when your car is worth less than the remaining balance of your car loan."
If you have negative equity, it might be a little harder to find a lender willing to take on this risk, but you can always provide a deposit to cover the gap if you're sure that a novated lease is the best choice.
Steps to refinance
Once you've decided to refinance and selected the novated lease to apply for, you can start your application.
If you are using your employer's existing financier, you will apply directly with them. Or if you are arranging your novated lease with a car loan broker, they will guide you through the documents they need to prepare and submit the application on your behalf.
Apply for the novated lease
Things you will need to complete your refinance application include:
- Current loan balance
- Proof of ID and address
- Current employment information and payslips
- Details of the car
- Estimate of current vehicle running costs
- Two personal referees
Once your novated lease is approved, you will arrange to pay out and finalise your old car loan.
Paying out your old car loan
Usually the new novated lease financier will make the arrangements to pay out your old car loan. You might need to call them to finalise your account.
Enjoy tax free benefits!
Now that you've got a novated leasing arrangement, you can relax and continue to enjoy your car without worrying. Find out more about how a broker can help you get a novated lease.