If you’re wondering how your company car increases borrowing power, then you’ve come to the right place.
Your company car must be available for personal use.
And if so, some lenders will increase your assessable income.
This increase to your assessable income will make your income appear higher than it actually is (which has the same net effect of reducing your living costs, to accommodate the fact you don’t have to pay for your own car).
And depending on the lender policy and your personal situation, that can have the effect of increasing your borrowing anywhere from $20-30,000 right up to almost $100,000.
Let’s put the $100,000 in perspective…
- At 7%pa interest, $100,000 would cost you an extra $7,000 per year in interest costs ($135 per week).
- So it’s quite feasible that the cost of a maintaining a car (including fuel) can be a lot higher than that… Right?
- Keep reading for a look at lender policy variations…
Watch the Demo to See 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 it’s done…
There’s 3 ways lenders will consider your company car:
- By ignoring it completely. Therefore, you get no boost in borrowing power (about 30% of lenders).
- Add a fixed amount to your gross taxable income (about 35% of lenders do this).
- By adding a fixed amount to your net after tax income (about 35% of lenders do this).
But there is one other significant variable… The Amount!
That is, by 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 NIL 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.