Who is eligible for a novated lease?

If you’re researching whether you can get a novated lease, here’s the short answer first:

A novated lease is available to many employees who receive a regular salary and have an employer who supports salary packaging.

However, eligibility depends on specific criteria, including employment status  and the type of vehicle you want to lease.

So, before you start browsing the latest car models or planning your weekend road trips, it is important to understand the specific criteria required to set up this type of arrangement.

As novated leasing involves your workplace, the rules are slightly different from a traditional car loan or dealership finance.

As Australia’s leading novated leasing provider, Smart™ is here to break it all down clearly and simply.

Who is eligible for a novated lease?

You are likely eligible for a novated lease if you meet the following criteria:

• you are a permanent full-time or part-time employee;
• you work for an employer than offers salary packaging as a workplace benefit; and
• you receive a regular taxable income from which pre-tax payments can be deducted.

As the lease payments are deducted by your payroll department, your employer must be willing to facilitate the arrangement. Fortunately, many employers across the corporate, government, health, and not-for-profit sectors already partner with providers like Smart to offer this benefit to their staff.

Can anyone get a novated lease?

While this benefit is highly accessible to many Australian workers, not everyone will qualify. Can anyone get a novated lease? The short answer is no. 

Casual employees, contractors, and temporary workers often face hurdles. On the basis that casual work can fluctuate and does not guarantee a consistent income, finance companies and employers may be hesitant to approve a multi-year lease agreement under these employment terms.

If your income varies significantly from week to week, managing a fixed pre-tax deduction becomes complicated. 

Can you get a novated lease without employer participation?

A common question among workers is whether they can secure this type of finance independently. Can you get a novated lease without employer participation? Unfortunately, you cannot.

The structure of the lease relies entirely on the employer deducting the funds from your pre-tax salary. Without an employer to facilitate this payroll deduction, the "novation" part of the lease does not exist.

If you are self-employed as a sole trader or your employer outright refuses to offer salary packaging, you will need to look into alternative car finance options.

What do you need for a novated lease?

Once you have confirmed that your employment status allows for salary packaging, there are a few practical and financial requirements to satisfy. What do you need for a novated lease to be approved?

• Employer approval: Your workplace must officially agree to administer the payroll deductions. If they are already partnered with Smart, this process is streamlined and efficient.
• Sufficient income: You need to earn enough to comfortably cover the cost of the lease and the running expenses without causing financial hardship.
• A valid driver's licence: You must hold a current Australian driver's licence.
• An eligible vehicle: Most new cars, and many used cars, are eligible. However, if you are purchasing a used vehicle, certain financier requirements regarding the age and value of the car must be met at the start and end of the lease term.

Credit requirements and applications

Just like other major financial commitments, securing a vehicle through salary packaging involves borrowing money from a financier. This means your financial history will be assessed to ensure you can responsibly manage the debt.

Does a novated lease require a credit check?

Yes, the application process involves a formal assessment of your financial standing. Does a novated lease require a credit check? Absolutely.

Even though the payments are deducted from your pre-tax salary by your employer, the finance contract is ultimately in your name. If you happen to leave your job, the lease agreement with your employer ends, but you remain responsible for the vehicle's finance payments.

For this reason, the finance company will conduct a standard credit check to review your borrowing history, outstanding debts, and overall credit score. With providers like Smart, applying online for finance usually features a 24-hour turnaround time, subject to this credit assessment.

Can you get a novated lease with a bad credit rating?

Having a less-than-perfect credit history can make borrowing money more difficult, but it is not always an automatic rejection. Can you get a novated lease with bad credit? It depends heavily on the specific policies of the finance company and the severity of your credit issues.

Minor blemishes on your credit file might be overlooked if you have a strong, stable employment history and a high income. However, significant negative marks, such as recent defaults or bankruptcy, may result in a declined application.

If you have concerns about your credit file, it is wise to obtain a copy of your credit report before applying. Taking steps to improve your credit score, such as paying down existing debts and ensuring all current bills are paid on time, will improve your chances of approval.

Maximising your benefits with electric vehicles

If you meet all the eligibility criteria, you might want to consider the type of vehicle you intend to drive. Leasing an eligible, fully-electric vehicle (EV) could offer substantial financial advantages.

Under the federal government's Electric Car Discount, eligible zero emissions vehicles are exempt from Fringe Benefits Tax (FBT) up to the Luxury Car Tax limit^. 100% of the lease and running costs can also be deducted from your before-tax income thanks to the discount.

This exemption could translate to thousands of dollars in tax savings each year and be an incredibly cost-effective choice for eligible employees.