How to get a novated lease with bad credit

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Written byShaun McGowanReviewed bySean Callery

Last updated3 November 2023

Can I get a novated lease with bad credit?

Having bad credit does not rule you out from being able to get a novated lease.

In fact, because of how novated leases work, you may have a better chance of approval compared to getting a car loan with bad credit.

Here’s why:

Only people who are in employment (usually you must also have passed probation) are eligible for a novated lease.
The lease payments are deducted directly from your salary (making default unlikely while you’re employed).
Ownership of the vehicle does not transfer to the borrower until the end of the lease (unlike a car loan) which reduces risk for the lender.
The finance is facilitated by a novated lease company with experience in getting different kinds of borrowers approved.
Tax savings can make a novated lease a more affordable finance option generally (particularly if you lease an eligible electric vehicle that's exempt from fringe benefits tax).

Will there be a novated lease credit check?

Yes, the lender providing the finance for the novated lease will carry out a credit check when assessing your application.

However, even if the credit check shows a low score, it does not necessarily mean you will have issues being approved for a novated lease. Lenders also look at what is causing the low credit score and how it has changed over time.

How does bad credit impact a novated lease?

The main impact of having bad credit will be on the interest rate you’re charged on the novated lease.

In that sense a novated lease is very similar to a car loan.

If you have bad credit you can expect to pay a higher interest rate on your novated lease.

But otherwise, you will likely be able to access the same novated lease deals as someone with good credit.

If you have more serious issues on your credit history, like unpaid defaults or if you’re subject to a court enforced debt agreement, it’s unlikely you’ll be eligible for a novated lease.

A credit check is just one part of how your application for a novated lease will be assessed.

These are the other factors the lender is likely to consider:

Your income
How long you’ve been employed in your current role
The other debts you have
What other assets you own

How to apply for a novated lease with bad credit?

First, check if your employer offers car salary sacrificing as a benefit.
Next, check your credit score so you know where you stand currently.
Then, get a novated lease quote to see how much your repayments will be based on your salary, the car you’re looking to finance and the estimated kilometres you’ll drive per month.
If you decide to proceed, the novated lease company will help facilitate the lease, including the process of getting your finance approved.

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How can I improve my chances of approval?

There are no guarantees when applying for finance if you have issues in your credit history.

But here are some steps you can take to give yourself the best chance possible of being approved for a novated lease:

Wait until you are well established in your employment before applying (at least 6 months but ideally 12 months) as this can affect your credit score positively
Choose a vehicle you can comfortably afford (e.g. a novated lease for a used car) even if you end up needing to pay for it using your after-tax salary
Consider waiting until your credit score has improved before applying if you need to.

What are the risks with a bad credit novated lease?

I’ve talked about how a novated lease can be a less risky form of finance for lenders.

But that doesn’t mean it’s without risk for the borrower. Particularly if you have bad credit.

For example, if you are charged a very high interest rate, some of the tax savings you’ll make by bundling your car running costs into the lease will be undone (although you'll likely still be saving money compared to other options for paying for a car).

You should also think about what would happen if you lose your job.

After all, you’ll still be responsible for the novated lease payments, without the tax savings you enjoyed through your employer.

Would you still be able to cover the repayments — for example, using your savings — until you find a new job? Even then, remember your new employer may not offer novated leasing as a benefit.

And don’t forget the residual payment which is the lump sum amount you’ll need to pay at the end of the novated term lease.

Are there no credit check novated leases?

In a word, no. Like any other finance agreement, the provider will do checks to make sure the borrower is able to afford the repayments. A credit check is almost always part of that as it gives a strong indication of how well the person has been able to repay credit in the past.

The novated lease company you apply through should be able to advise you on your likelihood of approval, making a declined application unlikely.

Find out more about the possible savings, benefits and things to watch out for, plus your range of options with a novated lease in Australia.