If your car is provided by your employer and are looking at ways to increase your home loan borrowing power, you’ll need to choose the right lender. In some instances a company car increases borrowing power and will allow you to borrow close to an extra $100,000.
This works because the lender adjusts your assessable income. This increase to your assessable income therefore increases your borrowing power.
Lender policy varies a lot as will your personal situation from others, but in some cases we’ve seen the company car increase borrowing power anywhere from $20,000 right up to almost $100,000.
Let’s put the $100,000 in perspective…
- Repayments on $100,000 would cost you around $100 per week.
- The cost of a maintaining a car (including fuel, insurance, registration, maintenance) is likely to cost you more than $100 per week.
Video: How a Company Car Increases Borrowing Power…
How much you can borrow, is determined by your available net income.
When it comes to how a Company Car increases your Borrowing Power, your lender simply adds a lump sum to either your gross or net income.
How Your Company Car Increases Borrowing Power (or not)
There’s 3 variations to lender policy:
- No impact. By ignoring it completely you get no boost in borrowing power.
- Add a fixed amount to your gross taxable income (the amount the lender adds can make a significant difference).
- By adding a fixed amount to your net after tax income (the amount the lender adds can make a significant difference).
How much will your lender load your income?
Each lender that does this will have a set figure, and they don’t negotiate or consider anything outside of their pre-determined policy.
They’ll either add nothing to your income, or they’ll probably fall within the ranges below:
|Lender Policy||Income Boost range|
|Adds Net Income||$3,500 – $7,500|
|Adds Gross Income||$5,000 – $7,500|
Does your partner also have a company car?
These amounts are per applicant.
Therefore, if you’re applying for a joint application and you both have a company car you both can add the allowance.
So in cases where you’ve got a joint application and both applicants have company cars… The company car increases borrowing power significantly, possibly to well above the $100,000 mentioned above.
Net Income loadings
For the lenders that add a net income amount to your assessment, almost all them will fall between the $3,500 to $5,000 range, with just one or two jumping up to around $7,500 per year.
When considering that your maximum borrowing capacity is determined by your net income, this can have a significant effect to your maximum loan.
If you’ve got a company car and you’ve been refused a loan, this could make the difference.
Gross Income loadings
If your lender is adding to your gross income, about 90% of them will use a figure of $5,000.
So the net amount your lender will use in the assessment will vary, depending on your income tax bracket.
If you’re earning $190,000 per year then you’ll have less net income available from the $5,000 than someone on $50,000 per year.
The Company Car definition, as your lender views it
- Normally only available for PAYG employees (eg. not self-employed)
- You must have a fully maintained company vehicle, that’s available for personal use.
- Maximum of 1 per applicant.
What a company car is not:
- It’s not a car allowance.
- It’s not a work truck / ute that you don’t use privately, whilst not on the job.
- It’s not a vehicle owned by your personal business (although if you fit in to this category, ask us about it).
What verification do you need for proof?
Most common acceptable forms of verification a lender will ask for are:
- Signed letter from your employer.
- Employment contract.
Any verification method must clearly state that the vehicle is available for personal use.
And the lenders may also verify this fact during phone checks of your employment.
Talk to an expert by contacting us today.