Can Anyone Get a Novated Lease: Novated Lease Eligibility Guide

A novated lease is a great financing option for aspiring car buyers. Our guide will discuss the key criteria for novated lease eligibility.

Can Anyone Get a Novated Lease: Novated Lease Eligibility Guide

A novated lease can be a great way of getting into the vehicle of your choice, while saving money by taking advantage of the many tax benefits that they provide.

Offered through your employer and a service provider, a novated lease bundles all of your car expenses together (repayments, registration, servicing etc) in the form of a monthly payment, which is taken from your before-tax income – in-turn reducing your taxable income.

While novated leases are a popular option for many employees, there are some key requirements you must first be able to meet. Check out Metro’s handy guide to applying for a novated lease here. 

Before you apply for a novated lease, it’s also important to understand its eligibility criteria and how it’s assessed.  

Who is Eligible for a Novated Lease?

Novated leases are in essence a financial agreement between you, your employer and a finance provider. The employee leases a vehicle, which their employer makes lease repayments for on the employee’s behalf. To better understand how eligibility is calculated for a novated lease, let’s take a look at what you need to qualify:

Your Financial Status

The first step towards having your novated lease approved is having your financial status assessed. This usually involves two key areas that lenders look at when assessing your suitability for a novated lease:

  • your credit score, which is based on your borrowing and repayment history, and
  • your debt-to-income ratio, which is the balance between your lease repayment amount and your monthly income

In assessing your financial status, it’s all about highs and lows. A high credit score, and a low debt-to-income ratio, are the preferred financial status indicators that lenders are looking for.

Your Employment Status

As a novated lease is offered via a lender through your employer, you must be employed in some shape or form in order to access one. There are several types or employment statuses that lenders will assess, including full-time and part-time, as well as in some instances, self-employed individuals. 

Just as in the process in assessing your financial status, your employment status is used as an indicator of your future ability to meet loan repayments. Full-time employees, for example, are usually preferred by lenders as they typically earn more per month than part-time employees (remembering payments are made by your employer from your pre-tax income) and are considered to have greater job stability.

Self-employed individuals may also be eligible for a novated lease, however they must also meet the same eligibility requirements as full-time and part-time employees, which can be more difficult to assess long-term given the often variable nature of self-employment.   

If you have any questions about accessing a novated lease from your employer, it’s best to check with them first. Remember, as an employee you must have first passed your probation period with your employer before accessing its novated lease program if it has one.

Your Chosen Vehicle’s Suitability

The third and final area of eligibility assessment when applying for a novated lease is the vehicle itself. While novated leases are designed to offer flexibility and a variety of vehicle options, the type of vehicle and its age are areas of assessment for lenders. 

Both new and used vehicles may be approved for a novated lease, however new vehicles will always be given preference by lenders due to their clean service history and factory warranties. 

The type of vehicle is also a consideration, as luxury and high-performance vehicles may have stricter lending requirements.

Frequently Asked Questions on Novated Lease Eligibility

As a leading non bank commercial lender in Australia, we support businesses via our trusted broker network with Commercial Finance, Finance Leases and Novated Leases.

Can I get a novated lease if I’m a probationary employee?

No. In order to access an employer’s novated lease program you typically have to have passed your probationary period, which is usually several months.

Yes, but they are assessed against the same requirements as full-time and part-time employees. Because self-employment can be less predictable in terms of financial stability, some lenders will not be able to offer self-employed individuals a novated lease. However, there are also alternative finance options and tax benefits that self-employed individuals may be able to access.

Yes. Because your employer makes lease repayments on your behalf if it is essential to have their approval.

That depends on a number of factors, including the length of the lease, the type of vehicle and its running costs. To get a better idea of costs specific to you, it’s best to speak with a reputable leasing provider and ask for a quote.

Novated leases offer flexibility of choice, with the predictability of regular lease repayments. Because these come out of your pre-tax income, it instantly reduces your tax liability, saving you money. As your employer is registered for GST, they can also claim this back and pass these savings on to you.

Once you’ve applied for and being granted a novated lease based on the steps above, your employer makes monthly payments on your behalf for the length of the lease, which includes the cost of the car and its running costs. At the end of the lease you can opt to either sell or return the car, start a new lease on another vehicle, or pay out the residual (which is also known as a balloon payment) thereby owning the vehicle.

For the term of the lease, the finance company owns the vehicle and you lease it from them.

Not during the term of a novated lease. By opting to pay-off the residual amount at the end of the lease you can end up owning the vehicle, however in doing this you forgo any continued tax benefits.

Basically everything but an air freshener! Finance, insurance, servicing, fuel, tyres, general maintenance, accident management, and any management fees from the lender.

Again, you have three options:

  1. Return the car, or alternatively sell the car to pay off the residual and then lease a new vehicle. If you sell the vehicle for more than the residual, any profits you make are yours!
  2. Extend your lease
  3. Pay off the residual (balloon payment) and keep the vehicle

Conclusion

By understanding the eligibility criteria for novated lease you’re one step closer to driving the car of your choice! Of course, before entering any financial agreement, its important to consult with your account, employer and financial provider to determine if a novated lease is right for you.

For more information on the types of financial products offered by Metro, including novated leases, talk to your Metro introducer.  

Green financing for business

Top five myths surrounding green finance for SMEs

The momentum on green loans is growing as the local market’s willingness to engage with green financing expands. Sustainability linked loan transactions have expanded across Australia over the past 12 months.

  • Green financing is a way for businesses and consumers to reduce their carbon footprint without breaking the bank. Research indicates that Australia’s roughly 2.4 million SMEs emit about 146.5 million tonnes annually, with transport identified as one of the key drivers of the carbon footprint of SMEs.

  • Increasingly, financial institutions are offering customers competitive green finance products.

Supporting the government’s net-zero initiatives, Metro recently launched its MetroEco product for small-to-medium sized businesses, developed in partnership with the Clean Energy Finance Corporation (CEFC) to provide discounted finance solutions for electric vehicles (EVs), solar panels, batteries and more efficient farm and building machinery.

While Australians are increasingly wanting to contribute to more sustainable business practices, there are quite a few myths and misinformation circulating about how green finance works, especially for EVs and equipment. So, we’d like to debunk a few of these.

Myth number one:

Green finance attracts higher interest rates than traditional finance.

Green loans can have lower interest rates than conventional loans.

Buying an EV could earn you a better deal on your car or van loan than through a traditional loan – with reduced fees and up to a 1% discount on interest rates. It can also provide competitive rates for energy efficient tractors, earth movers and cranes.

For example, a MetroEco loan of $60,000 for an EV could save some $1700 in interest expenses over five years. Metro strives to make owning an electric vehicle and installing a solar system not only a sustainable choice but also an affordable one. Our competitive rates and flexible terms ensure that you receive the best possible options for your EV, plug in hybrid car loan or next eco-friendly purchase.

Myth number two:

Green finance involves more hurdles for applicants.

With the extra momentum and motivation from lending institutions and government to support reduced emissions, red tape is minimised for businesses who are being encouraged to support Australia’s sustainability goals. Metro aims to make the green loan repayment process as convenient and stress-free as possible.

Metro’s streamlined green loan application process for EVs and equipment ensures that clients receive a prompt response, allowing them to secure an EV for their commercial fleet, faster and easier.

Myth number three:

It’s just the same finance but with a different name.

Green loans operate in the same way as traditional loans in general, but there are important distinctions. The process is the same in that the borrower applies for finance from a lender and the lender assesses their application before deciding whether to loan a sum of money or not. However, this is where the similarity ends. The main difference between the two types of loans is where the finance is generated from and its purpose.

Different purpose: Traditional finance can be applied for a variety of purposes and products and can originate from, while green loans may only be used for the purchase of approved environmentally friendly products that have the dual purpose of reducing carbon emissions and supporting net-zero goals.

Lower interest rates: Lenders can apply a lower interest rate to green loans, helping to incentivise the purchase of environmentally-friendly products.

Access to benefits: Using a green loan allows you to purchase environmentally friendly products and start enjoying their benefits sooner while paying off the balance over several months or years Much like standard finance, the terms of green lending do vary between lenders.

Myth number four:

Only established businesses can successfully apply.

MetroEco offers green loans for commercial EVs and equipment to all kinds of businesses, provided they meet the usual criteria and credit approval checks. We do not restrict our green loan products to established business entities. (minimum of 2 years trading history required).

Myth number five:

Green finance can only cover a short period because EVs and hybrid vehicles don’t last as long as traditional vehicles.

This is not the case. At Metro, for example, you can choose an electric vehicle loan term of up to five years to suit your business’s financial situation and preferences. Whether you prefer a shorter term to pay off your electric vehicle loan quickly or a longer term with lower monthly payments, we have options that cater to these individual and business needs.

Loan terms do vary across lenders.

For more information about MetroEco finance please visit: https://metrofin.com.au/metro-eco-electric-vehicles/

Choosing the right EV for your company’s fleet 

Whether you have a local fleet of vehicles that run short distances or a delivery cargo van that covers a fair number of kilometres a day, or even if your distance range is beyond this, commercial electric vehicles could be a good fit.

You may have heard that electric vehicle (EV) adoption is steadily growing in Australia in support of the country’s net-zero emissions goals, while investment in charging station points has also been turbocharged; but how are we travelling when it comes to the bigger contributor to carbon emissions: commercial transport fleets?

Australia still has a way to go with fleet decarbonization, but we are forging ahead. 

A Report by AMFA found that more fleets are now using Battery Electric Vehicles (BEVs) with 45 per cent of fleets now having at least one BEV, up from 25 per cent in 2020. Government fleets are at the forefront of EV adoption.

As a comparison, the United States is also taking action. McKinsey Sustainability Insights projects that commercial and passenger fleets in the US could include as many as eight million EVs by 2030 (up from less than 5000 in 2018), which would amount to 10-15 per cent of all fleet vehicles. 

You may have heard that electric vehicle (EV) adoption is steadily growing in Australia in support of the country’s net-zero emissions goals, while investment in charging station points has also been turbocharged; but how are we travelling when it comes to the bigger contributor to carbon emissions: commercial transport fleets?

New models available

According to a reputable EV news site in Australia: The Driven, these are some new models you might want to consider for your commercial fleet: Arrival mid-late 2024

01 /

Ford

Has announced that its smaller light commercial E-Transit Custom van will be arriving in Australia in the latter half of 2024.

02 /

Peugeot Australia

Has confirmed the arrival of the larger light commercial e-Expert van in late 2024. This model provides more space and a longer driving range compared to the smaller e-Partner van.

03 /

Renault’s Master E-Tech

The largest in their light commercial van lineup, is set to debut in Australia in 2024. Positioned between the smaller Kangoo E-Tech and the larger Master E-Tech, the Renault Trafic E-Tech light commercial van offers enhanced efficiency and can travel up to 297 km on a full charge. Renault plans to introduce the Trafic E-Tech in Australia in late 2024.

04 /

Zeekr

AChinese brand under the Geely umbrella—which also owns Volvo, Polestar, and Lotus—will be launching its luxury electric people mover, the Zeekr 009, in Australia during the second half of 2024. The Zeekr 009 utilizes the same Sustainable Experience Architecture (SEA) platform as the Volvo EX30 and Polestar.

Carsguide also put together a list of ‘top 10 commercial vehicles to keep an eye on in Australia’. Among its favourites are the Renault Kangoo Z.E van, BYD T3 van, Skywell EC11 cargo van, Tesla Cybertruck and the Mercedes-Benz eVito panel van.

Future looks bright

There’s more good news and green shoots on the horizon in transport decarbonisation in Australia. Car reviewers are tipping that Australians will soon see an EV version of the very popular Toyota HiLux Ute after the company confirmed it will begin making it by the end of 2025. As a nation, we are also starting to flex our innovation muscle in commercial EV technology development. Homegrown EV start-up SEA-Electric has created an Australian software and component system to be fitted into light commercial vehicles including delivery and distribution vans. They recently signed up to a groundbreaking exclusive supply deal with two global manufacturers – Japanese truck giant Hino (a Toyota subsidiary) and Volvo’s Mack – to deliver thousands of its ‘drivetrain’ system units to electrify this segment of the commercial vehicle sector. So, watch this space! For more information you can also check out the Governments guide to green vehicles: https://www.greenvehicleguide.gov.au/

The rise (and fall?) of electric vehicles

News of an EV downturn is not all doom and gloom

It’s virtually impossible to have missed the rise of electric vehicles (EVs) and what they mean for the future of mobility. 

First pitched as a utopian technological saviour, then widely derided as an expensive, compromised replacement for internal combustion engine (ICE) vehicles, and now an increasingly viable mainstream option, EVs still have their fair share of fans and detractors, but one thing remains certain: they’re here to stay. 

Where the topic of EV market penetration gets tricky is predicting how much of the market share they will come to occupy in the years to come. The answer seemingly differs depending on who you ask.

From a manufacturing perspective, the world’s top auto brands are taking a bit of a breather on some of their lofty EV predictions. BMW and Mercedes-Benz have previously revised its EV sales predictions, while ‘The Big 3’ US carmakers, Ford, General Motors and Stellantis (previously Fiat Chrysler), have successfully persuaded the US Government to walk-back its own targets, with the Environment Protection Agency (EPA) revising its expectation that EVs would make up around 67 per cent of the US new car market by 2032, down to between 35 to 56 per cent.

So, does this mean that electric vehicles are in decline? 

Yes and no. While it’s true the number of electric vehicles sold every month in both Australia and the other parts of the world have declined, it should be noted that EVs account for around 8% market share in Oz mid-year, up from 7.4% the same time last year. Industry analysts are predicting it is more a case of market appetite for EVs slowing, rather than an about-face. 

So why the slow-down? There are likely to be a number of reasons: first of all, as EVs become more common place, tech-savvy early-adopters drop-off the sales bell-curve and are replaced by more risk-adverse and technology agnostic mainstream buyers – meaning they are harder to entice into a relatively unknown technology. Secondly, concerns remain over a lack of public charging infrastructure, and thirdly (and perhaps most significantly), there’s the cost. As Australia grapples with a cost-of-living crisis, consumers are holding onto their cars longer and will look to more affordable options (both in terms of purchase price and up-front running costs) when purchasing a vehicle for their household.

Government incentives played a part in pushing early EV sales up in Australia, however now that they have concluded (at least from a purchase price perspective) many EVs are once again significantly more expensive than a comparable ICE vehicle. 

Where Australia is concerned, geography also plays a part. 

As a continent with huge distances between major capital cities and townships, range remains a common source of anxiety for would-be EV buyers. While the driving range of EVs continues to increase, availability of charging infrastructure, both in terms of physical access to a charger and one that it is functional, is a lingering concern. 

The continued uptake of plug-in hybrid vehicles in Australia points would suggest a market need for more reliable refuelling on long journeys – in time, further charging infrastructure will remedy this, as will the addition of other uber-efficient technologies, like hydrogen, on our roads. 

There is a good case for taking current EV sales trajectories with a grain of salt. EV sales doubled and tripled each month in 2022 and 2023, and while there is a noticeable plateau in the middle of 2024, the first sixth months of the year has seen EV sales outperform the market by almost double – as noted by the CEO of Australian Automotive Dealers Association (AADA)  in a recent interview. (https://www.drive.com.au/news/electric-car-sales-fall-in-australia-june-2024/)
Regardless of current market trends, electric vehicles represent a viable mobility option for many Australians in both urban and rural areas. Metro Finance, through its MetroEco product, offers a range of savings for customers looking to purchase sustainable technologies such as solar panels, battery chargers and electric vehicles. To find out more, talk to your Metro Finance broker.

Getting the most out of a novated lease

A bit of careful consideration now can net better returns later

A novated lease is a great way to get into the vehicle of your choice, while at the same time taking advantage of a range of money-saving benefits as part of your lease. 

As we’ve talked about before, a novated lease is offered through your employer via a service provider, with the lease paid from your salary before tax; thereby potentially reducing the amount of tax you have to pay. Another financial benefit of novating leasing is you don’t pay GST on the car you purchase, or its running costs – once again, potentially putting more money in your pocket.

However, there is another major benefit of a novated lease over other means of acquiring a vehicle, and the answer lies in residual value.

What is a residual value?

In the case of a novated lease, the residual value of a vehicle is what the vehicle is worth at the end of a lease term. This is calculated by a number of factors, including: 

Market desire for that particular vehicle (e.g. Toyota RAV4), based on previous sales in your city and state 

Assumed wear and tear on the vehicle over the term of the loan

Minimum residual value percentages set by the Australian Tax Office (ATO)

These factors all contribute to your new vehicle’s expected residual value at the end of its lease term, which will then inform how much money you need to pay to your lease provider if you decide to keep your vehicle. This is known as a balloon payment.

About ATO Minimum residual value percentages

The ATO has guidelines on residual values based on a minimum percentage of the vehicle cost over the lease term. 

These percentages can be lower if the value of the vehicle is likely to be less at the end of the lease term – usually because you intend to add a lot of mileage to the vehicle. This is typically discussed and agreed to by all parties at the time of starting a new lease.

ATO Minimum residual value percentages:

12-month lease

24-month lease

36-month lease

48-month lease

60-month lease

65.63%

56.25%

46.88%

37.5%

28.13%

A few things to remember

01 /

You don’t have to keep your vehicle at the end of its lease term.

The great thing about a novated lease is the flexibility it can offer – you can also choose to return the vehicle to your provider or start a new lease with a new vehicle; it’s completely up to you.

02 /

If you do choose to keep your vehicle

(having formed an unbreakable bond with it over your time together – we get it…) you can opt to pay the previously agreed balloon payment to your lease provider, or even apply to re-finance the amount owing.

03 /

Typically, novated leases cost less than a standard car loan or purchasing a vehicle outright;

but many use novated leasing as a way to recoup even more money by selling their vehicle privately or to a dealer at current market value – which is often higher than the agreed residual value set at the beginning of a lease. 

Here are some ways that you can ensure the highest possible return for your vehicle at the end of a novated lease:

  • Do your research before you buy: by choosing a popular vehicle from a well-known brand you’re already setting yourself up for future resale success.
  • Think about the resale value: Just because you like lurid green cars with purple interiors doesn’t mean that many others will. If you intend on selling your vehicle at the end of its lease, specifying it with options and features that have universal appeal is the best strategy. 
  • Take good care of your vehicle: Remember, it’s not just age and kilometres that determine residual and resale values. Having a regularly, and correctly, maintained vehicle free from damage dramatically improves its value.

What to do next

Interested to know more about how a novated lease might work for you? It’s important to consider all your options when deciding on whether a novated lease is right for you. Talk to your employer and your accountant first to understand the pros and cons that relate specifically to your financial position before making any decisions.

Explainer: Novated Leases

Need a car?

For many of us, having access to our own vehicle is more than a nice-to-have, it’s an essential part of our lives and the jobs we do. However, there is more than just one way to get into a vehicle of your choice – aside from purchasing outright, getting a loan or entering a guaranteed future value (GFV) programme offered by a manufacturer, a novated lease may be just the ticket to getting you into the car you want, and benefiting from potential tax savings in the process.

So, what is a novated lease?

Think of it as bundling a vehicle into your pre-tax income with your employer.  Your employer makes car repayments to a finance provider like Metro Finance for you from your pre-tax income, potentially reducing your own tax liability and saving you money. This is commonly known as salary sacrificing.

Both car loans and novated leases offer the potential to get into a new or used vehicle; however, unlike a typical car loan, your employer pays the finance provider directly, rather than you. You also can’t include running costs in a standard car loan, which you can with a novated lease.

Sounds great, how do I get one?

First things first, you need to talk to your employer about novated leasing and what options they may have available for employees – in most instances, new employees will need to complete their probation period before being able to access novated leasing if its offered. Check if there are any restrictions on the type of vehicle you can lease (either in terms of vehicle segment, or whether it’s a used or new vehicle) or its value; it’s also a good idea to talk to your accountant about how the potential lease may affect your future tax payments. 

From there, if your employer offers novated leasing as an employee benefit, you would typically apply for approval via your employer, who would coordinate the lease on your behalf. Your employer will provide the finance provider with all the relevant info about you (such as income, any expenses and living circumstances), and you’ll probably need to complete a credit check – so best be aware of what your credit rating is before completing this step. 

Once approved, your lease agreement between you, your employer and the finance provider is set-up, and is done before you buy a car (or have one purchased for you by the finance provider). The agreement will include things like lease duration, how many kilometres you intend to drive each year and, of course, the type of car you’re keen on buying.

What are the benefits of novated leasing?

In short: saving you money. Because your novated lease would be paid from your salary before tax, it could potentially reduce the amount of tax you have to pay. Another financial benefit is you don’t pay GST on the car you purchase, or its running costs – once again, potentially putting more money in your pocket. 

The other big benefit is the flexibility of not owning the car outright (which you can still do by paying any agreed amount owing at the end of the lease term), and knowing how much it will cost you month-to-month with set payments.

All right then, what’s the downside?

Let’s be clear: a novated lease may not be the right option for some. Because you don’t own the vehicle in a novated lease, you may need to pay what’s left of the vehicle’s value if you decide to keep it at the end of the lease term; and there may be administration fees, interest and potentially fringe benefits tax (FBT) to pay.

The other drawback for some may be that a novated lease is tied to your employer, so if you lose your job or change employers, you may need to pay out the lease. However, in some instances you may be able to roll the lease over to your new employer and keep pre-tax payments going in your new role.

Anything else I should know?

It’s important to consider all your options when deciding on whether a novated lease is right for you. Talk to your employer and your accountant first to understand the pros and cons that relate specifically to your financial position before making any decisions.