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November 13, 2014

Novated leases – “What happens if I lose my job?”

One of the most common questions we are asked by people enquiring about novated leases is “what happens if I lose my job?” This is one of the most important questions you should ask when taking out any sort of finance.

As a brief recap, a novated lease is a three way agreement between you (employee) your employer and your leasing company. Essentially, the leasing company leases you a car for a set period and, while you are employed with that employer, you pass the payment responsibilities for that lease (novate) to your employer and they make the repayments out of your pre-tax salary. 

If you leave your employment, whether voluntary or not, the novation dissolves and you are left with a lease agreement between you and the leasing company. From here your options are:

1. Continue to make the repayments yourself until you find new  employment at which time you can re-novate with your new employer (if  they allow it).

2. Sell the vehicle, and pay the outstanding finance amount out – the  viability of this option depends on whether the value of the car is equal  to, or greater than, the finance payout.

3. If included, look to claim on hand-back insurance such as Loan  Termination Insurance (LTI). Insurance policies like these allow you, in  cases where you have become involuntarily unemployed, to make a  claim and hand the vehicle back and/or have three months repayments  made on your behalf. Like any insurance policy, the total payout is  capped at certain limits so there could still be a shortfall depending on  the cars value vs payout and certain terms and conditions must be met. 

A good leasing company should work with you closely to work through the best option and as more and more companies are looking to novated leasing as a way to manage vehicles it is getting easier to find employers that will allow employees to transfer across with existing novated leases. 

To see what you could save with a novated lease, click here

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