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What A Novated Lease Is

Here’s What A Novated Lease Really Is

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Why do people work? Work provides a sense of belonging, satisfaction, and reward – although work isn’t exactly fun whenever people are hard at work – for many. However, a majority of people with jobs wouldn’t go to work for the above three feelings – that’s for sure.

Virtually everyone works to earn enough money to support themselves financially. However, employees also provide another type of compensation outside of money – well, really a few different kinds of non financial compensation – that make up what’s known as benefit packages.

Lots of employers offer health insurance, matched retirement accounts, gym memberships, paid travel, being able to work from home, paid time off, and the list goes on.

Although people do not generally have enough money to pay off something like a mortgage or car, such as the Car Loans at Stratton Finance that people commonly apply for, Australia is lucky enough to be the world’s capital of employers that offer novated lease agreements.

The Definition Of A Novated Lease Agreement

Many things in life are leased. However, the term “novated lease” almost always refers to leasing a car. Here are the basics of a novated lease, in simple terms:

  • Employer is responsible for paying the financier directly. Outside of a negligible amount of paperwork, employers don’t do much, at all, outside of remitting payments to the intermediary.
  • Employee agrees to take a lower salary for a leased vehicle.
  • Financier – an intermediary between employer and employee that handles payments and other money business – is responsible for collecting payments, enforcing late fees and delinquencies, and keeping records of financial progress towards payment completion.

And if you were looking for the true definition of a novated lease … To novate means to replace one party with another. In the case of Australia’s popular novated lease agreements, novation occurs when the involved employer takes responsibility of paying the financier and filling initial paperwork out; in traditional two-party lease agreements, the lessee is responsible for these burdens.

What Do Parties Involved In Novated Lease Agreements Derive From Such?

Employees’ central benefit of having a novated lease agreement is the tax benefits. Because payments are taken out of before-tax income, the cost of any vehicle obtained through a novated lease is effectively lower for the employee.

Organizations that offer novated leases such as the Novated Lease at Stratton Finance like doing so because employees tend to act with greater appreciation and loyalty; such lease agreements come at virtually zero additional cost, even though employees garner significant financial benefits because of them; and responsibility for the vehicle under novated lease agreement reverts to the employee if that person quits their position.

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