In detail
Car finance in Australia takes several forms including secured car loans, chattel mortgages for business use, and novated leases through an employer salary package. Secured car loans are treated as standard liabilities with repayments flowing into serviceability. Novated leases are more complex because the repayment comes out of pre tax income and shows on payslips as a salary reduction.
For novated leases most lenders either reduce the assessable base salary by the lease amount or treat the lease repayment as a liability. Double counting is a common error when brokers both reduce base salary and add the lease as a separate commitment, so it pays to know each lender methodology.
Why it matters for brokers
Novated lease treatment varies widely between lenders and can materially affect borrowing capacity. Getting it right for a senior corporate client with a packaged vehicle can be the difference between approval and decline.
Example in practice
An executive packages a $60,000 vehicle under a novated lease at $1,200 a month pre tax. At lender A the broker adds the $1,200 as a monthly commitment. At lender B the broker reduces the base salary by $14,400 a year instead. Both approaches avoid double counting.
Related terms
Personal Loan
An unsecured or secured loan for a fixed amount repaid over a set term with regular repayments.
Credit Card Limit
The maximum amount a credit card holder can spend on a card, whether or not the balance is drawn.
Serviceability
A lender assessment of whether a borrower can meet loan repayments from their income after accounting for expenses, existing debts, and a buffer.
Debt to Income Ratio (DTI)
Total debt divided by gross annual income, used by lenders as a supplementary risk measure alongside serviceability.
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