Novated Lease with Bad Credit – How Does It Work?

E

emily Lopez

Member
Hi
I was planning to finance a car for personal use when I came across the term “novated leasing.” From what I’ve gathered through a quick Google search, it’s a setup where your employer pays for the car from your pre-tax salary, which can help reduce your taxable income.
That sounds great in theory, but I’m still a bit confused about how it actually works. Do you go through your employer first, or start the process with the leasing agent and loop your employer in later? Also, how does this really compare to just financing the car yourself in terms of overall cost and flexibility? And one more thing does a novated lease affect your credit score, especially if your credit isn’t perfect?
 
You usually go through a leasing provider first. They assess your eligibility, then contact your employer to get the salary packaging approved. It's basically a three-way agreement: you, the employer, and the leasing company
 
With a novated lease, payments come out pre-tax, so it can reduce your taxable income. But don’t forget about post-tax contributions too depending on the lease, some of it might still come from your net pay
 
Speak to your HR/payroll team before talking to a lease provider. Not all companies support novated leases, and it’s a headache if you go down that road only to get shut down internally
 
It can affect your credit. The lease is in your name, so if you default or miss payments, it’s on you even if your employer is making the payments on your behalf
 
Novated leases often include vehicle maintenance, insurance, rego, and fuel cards in the package. It simplifies budgeting but make sure you’re not overpaying for the convenience
 
Did a novated lease with a 630 credit score. Took some explaining but they approved me with a higher interest rate. I still saved more than I would’ve on a regular car loan due to the tax savings
 
I had a novated lease for three years. Worked great until I switched jobs and the new employer didn’t support it. Suddenly I was responsible for the lease and the full payment. Be careful with that!
 
I got knocked back for a novated lease because my credit was trash. Leasing company said the employer backing helped, but they still ran a credit check on me
 
I help clients with this stuff all the time. With bad credit, you’re not out of luck, but your interest rate and residual balloon may be higher. Some providers are more flexible than others.
 
I’m currently on a novated lease with a pretty rough credit history (low 500s when I applied). It was actually easier than getting a personal car loan because technically the lease is through my employer. The leasing company still ran a credit check, but the employer backing made it less risky for them. Just be ready for a higher interest rate.
 
The process usually starts with the leasing agent, not the employer. They’ll assess your situation and loop in your HR/payroll once you decide to move forward. But keep in mind, not all employers offer novated leasing.....it has to be part of your benefits structure. So step one is: ask HR if it’s even an option.
 
Yeah it sounds good but it’s not always cheaper in the long run. You're paying for convenience and tax benefits, but the vehicle is technically not yours. You’re renting it with pre-tax dollars, sure but that can get messy if you change jobs or get laid off.
 
You’re spot on asking about the credit score thing. A novated lease can impact your credit. Miss payments or default? It’s on you. Even though your employer is facilitating it, the debt is in your name. If your credit’s already struggling, be cautious.
 
I applied with bad credit last year, and yeah, it went through, but the leasing company wanted a larger upfront payment. They saw me as high risk. So technically possible but you pay more upfront and monthly.
 
If you're looking to reduce taxable income and can manage a regular salary, novated leases can make sense. But you lose flexibility. Can’t just sell or swap the car like with a personal finance loan. Plus it’s often more expensive than just buying used.
 
What confused me at first: the lease is your responsibility. The employer just deducts payments from your salary. So if you leave the company, they stop paying, and you’re stuck with the lease. Most people don’t realize that.
 
From a tax perspective, novated leasing is clever. Pre-tax income = lower taxable earnings, possibly higher tax return. But the ATO (in Australia) is watching closely now to make sure people aren’t abusing it for luxury cars. Stay under the fringe benefits tax threshold!
 
It’s about long-term cost, not short-term sparkle. If it fits your situation go for it. Just read that fine print thrice
 
Bad credit doesn’t mean no options. Just means you gotta look harder, ask smarter questions, and negotiate everything
 
You must log in or register to reply here.
Back
Top