Many employees prefer signing in for a Novated lease agreement for purchasing a car. The concept is relatively new but been adopted by the corporate world on the fast track. Novated Lease Agreement is an agreement between the employer, employee and a car financing company. All the three parties benefit from this agreement.
The employers provide a vehicle to the employee which is financed through a leasing company. The amount of installment is made part of the employee?s salary. Many companies that require their employees to have a car of their own for marketing, distribution or business development purpose opt for this option. This also helps them satisfying employee benefit structure while fulfilling the company?s requirements. The vehicle remains the ownership of the employee who at times uses it in a company?s work as well. The vehicle is not calculated towards the assets of the company; hence repair and maintenance charges are also not borne by the company.? The Novated Lease therefore provides a vehicle which is neither an asset nor a liability for the company.
In Novated Lease, an employee has the option to lease a car of his choice. In a few cases, the company fixes a maximum limit of the installment. Depending on the maximum limit the employee can select any car and get it financed. In case the installment amount exceeds the permissible installment amount by the company, the employee can make down payment and bring down per month installment amount accordingly. The monthly installments are paid from his salary before the deduction of tax. As this reduces his taxable income, he can easily save a good amount. In Novted Lease Agreement, the ownership of the vehicle rests with the employee. Although the company pays the installment amount on his behalf, he remains the owner of the vehicle. In case he plans to switch his job, the loan can be transferred from the current employer to the new, so switching a job is also not an issue.
Other than employee and employer, the financing company is also at the benefiting edge in Novated leasing Agreements. Financing companies tend to minimize their risk while extending loans. In case of Novated Lease, the company agrees to pay installments on the behalf of the borrower which minimizes the risk that the financing party has to bear. The companies are off course more trustworthy as compared to individuals. Few financing companies make a long term agreement with the employers offering a special interest rate on all the cases of the employees of the specific employers.
As the risk factor is on the lower side, the employee can even get this loan at lower interest rate. This in turn saves him more money. So basically Novated lease helps the employee to secure car loans at lower interest rate and pay installments before the deduction of tax. The companies provide an extra benefit to the employees by providing an asset for which they are eventually playing out of their own salary. The financing companies minimize the risk factor and secure the stake amount.
Author Bio
Bart is finance consultant and a freelance blogger, he loves to write articles on car finance .He recently visited a website http://www.fincar.com.au/ and found it interesting.
Source: http://www.auto-candy.com/novated-lease-great-way-to-own-a-car-in-australia/
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