What are the Benefits of a Salary Sacrifice Car Loan?

If you’re employed and earning a regular wage, then salary sacrificing is a popular option to help you get into a new car. For many employees this can be a convenient option to help provide accessibility to the new car market, while also potentially affording tax breaks as well.

Of course this will vary from person to person, and you should always seek individual personal advice, but let us take a look more broadly at some of the general benefits associated with a salary sacrifice car loan.

 

 

Isn’t this the same as a novated lease?

If this was the first thought that went running through your head, then yes, you’re absolutely correct. A salary sacrifice car loan is identical to a novated lease, it is merely an alternative name for the same finance product.

The mechanics of this product works as follows. An employee forgoes part of their pre-tax salary to make repayments on the car and cover running costs. Their employer is the one who collects the amount sacrificed from the employee’s salary, in turn handling the administrative and financial side with the financier.

 

How does salary sacrificing benefit me?

Let’s first consider this from the perspective of an employee. If you apply for a normal car loan your repayments would be made after tax has been deducted from your salary. When you use a salary sacrifice car loan, the payments made by the employer are done before any tax has been withheld. The significance of this is that it means you can potentially reduce your taxable income and also extend your earnings further.

If you are an employer, then a salary sacrifice car loan can be used as a lucrative incentive to draw new staff to your business. On top of this you may also be eligible for certain tax benefits. For example, it may be used to reduce your payroll tax liabilities. You can also offset the liability of any fringe benefits tax to your employee so that you do not become liable for this payment. From a GST perspective, you may be able to claim GST credits and improve your cash flow, since it is the financier who purchases the vehicle and leases it accordingly.

 

 

Above all else…

These type of arrangements can be particularly complex for employees to understand if they are unfamiliar with the notion of a salary sacrifice car loan. Some employees may even think that this vehicle is then restricted to business use, or while working for their current employer, when this is not the case.

Should you switch jobs, the novated lease may be brought to your new employer if they are willing to act as a party to the contract. The car belongs to you. Do remember however, this is just a general guide and it is recommended that you speak with an expert to understand your own personal financial circumstances.

 

The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.

Should I Refinance my Car Loan Through the Same Lender?

As we’ve previously discussed, refinancing your car loan can be a great option for those who need flexibility to navigate certain financial circumstances. Sometimes these events may be in your favour and you’d like to arrange for earlier repayment of the loan, or a lower rate to decrease your repayments.

In other instances, it may be because you cannot meet your obligations and need to extend or defer the term or balloon payment associated with the loan. So with its place as a valuable financial tool, the question then extends to whether you should refinance your car loan through the same lender?

 

 

Why should I refinance with my current lender?

While the obvious consideration is that competition provides a good point of comparison to negotiate a better deal, choosing to stay with your current financier can offer certain benefits. These include:

  • Less hassle and inconvenience – it will take less time and far less administrative effort to retain and refinance your car loan with your existing provider, especially as all your details are on file already
  • You still have scope to negotiate – if you have proven yourself to be a reliable and trusted borrower, you can approach the financier to improve the terms of the loan as it is. Should you go externally, you can still use this quote with your current lender to potentially negotiate yourself a better interest rate and lower repayments
  • Consolidated financial position – if you prefer having all your financial accounts consolidated with say, the same bank, you have more flexibility and access to move funds around at will. For example, if the finance has been drawn against home equity and consolidated into the one loan with your house, this will become easier to manage
  • An understanding of service levels – as the saying goes, sometimes the grass seems greener, but until you switch over to a new financier, you don’t entirely know what sort of service levels you are signing up for, nor how they will compare with your existing lender
  • Exit fees – keep in mind that switching financiers could involve fees when you exit the current loan, and on the contrary, there is no guarantee another lender will cover these, nor forgo establishment fees to set up the new loan with them. Make sure you ask!

 

We all know that there can be significant benefits to switching lenders, as your current loan might not be doing you justice and costing you more in the long run. It might not even be apparent to you just how your current deal stacks up unless you go externally to another financier to enquire about their options.

The above points however, serve as a contrarian viewpoint for those who don’t necessarily want to go through the hassle of finding a new financier, drawn particularly by the allure of lower interest rates.

 

The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.