Does a novated leave affect serviceability

[tubs]

Hi all

Maybe one of our kind brokers can tell me what effect a novated leave has on borrowing capacity. I would have thought that it would have little effect, since it is much cheaper than buying a vehicle and paying for running costs AFTER tax, but I have been told that the lease repayment effectively reduces your borrowing capacity as it would if it were a normal loan repayment.

I dont see how this can be, since a lot of the repayment is to purchase petrol, servicing, insurance etc for about a 40% discount! Surely this bit (at least) would be a positive.

Thanks

Tubs

 

[Rolf Latham]

Hiya

A novated lease is a lease where ulitmately you underwrite the loan.

So it affects your numbers quite badly with most lenders.

Some lenders allow a car addback where a car is fully maintained and provided by the employer, or there is a novated operating lease..

Serviceability models are based on you owning a car and running it out of your Hendersons Poverty Index allowance.

ta
rolf

 

[Mr Ed]

The novated deed is three ways, employer, credit provider and you. Your employer signs to say they will pay the pmts for you for your widget from your gross income whilst ever you are employed there. Your benefit is you pay less PAYG tax, employers benefit is a reduction in Payroll tax and superanuation contributions + hopefully a more loyal employee. Credit providers is continuity of pmts + usually a higher %. Negatives are more paperwoprk for the employer, FBT for you (usually), and the credit provider if you leave as your deed is void and you have to make the pmts from your net salary @ your new job if the new emploeyer won't do the same.

For the new lender that is doing your IP, it is a cost that generates no income, so it is like having kids )

Whether it is novated or not, no income producing borrowings are usually hard on your IP servicing models.

Just as a matter of interest of all the novated leases I did, (Vehicles) I don't think anyone came back and said lets do that again.

If it's a car, pay cash for it. (Ther are some exceptions to tins but this reply is getting loooong)