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You don’t have to be a product expert to provide expert service

22 Aug 2019 3:19 PM -

Providing additional services for your clients doesn’t mean that you need to be an expert on every product type and financial solution. Because of this, we have support groups and subject matter experts. Recognizing needs, asking the right questions and finding the best possible solution through collaborating with different colleagues, groups and organizations is where the value lies.


The idea of knowing every available lender, product, policy and industry is impossible. However, when you know your own space inside and out, it’s scary to leave that comfort zone and start navigating unfamiliar territory. At NLG Leasing, our area of expertise is asset and equipment finance. Even though we have a team of specialists guiding and supporting you and your client relationships, we also want to provide enough education to allow you to feel confident when talking to your clients.

So today we wanted to share with you, just a little bit around the available product types and their features.


Secured consumer loan

 
Finance for consumer use that is governed by the NCCP guidelines. The asset must be for non income producing purposes ie. personal use at least 50% of the time. Moreover, the asset is owned by the borrower. The borrower has secured the asset against another asset the borrower owns, normally property.
Pros
  • Provides 100% finance
  • Ability to incorporate costs
  • Borrower protection under NCCP
  • Early termination fees are also governed by NCCP– Check lender policy
  • Interest rates are generally lower on secured versus unsecured loans.
Cons
  • Broker must undertake required NCCP disclosure documents
  • Once established, payments are fixed and cannot be varied without a total restructure of the loan
  • Interest rates are typically 0.5% to 1.00% higher than lending for business purposes
  • Most lenders will charge a monthly service fee (approximately $5) which will be added to loan repayments
  • Balloon amount is determined by the anticipated value of the car at the end of the term, subject to lender approval.


Chattel mortgage

 
A chattel mortgage is also known as a 'bill of sale' or a 'commercial loan'. It is the financing of assets for business use for companies, partnerships or individuals who don't hold an ABN but will use the asset to generate income.  It is between the lender (mortgagor) and borrower (mortgagee) where the loan is secured by a mortgage over the goods financed. 100% of the purchase price can be funded, but you can pay a deposit to reduce the amount borrowed. The borrower owns the asset, therefore all rights and obligations rest with the borrower e.g. registration, repairs, comprehensive insurance for the loan term. Balloon payments are a common feature for assets such as motor vehicles and determined by the anticipated value of the car at the end of the term, subject to lender approval.
Pros
  • Provides 100% finance
  • Provides greatest flexibility as repayments can be in advance (1st instalment due at settlement), in arrears or structured payments
  • Tax benefit– clients must seek their own professional advice
Cons
  • Break costs will apply in the event of early payout (varies lender to lender)
  • Once established, repayment arrangements are fixed


PAYG Chattel

 
PAYG Chattel is a commercial loan for PAYG clients. The advantage being the interest rates on chattel mortgages are lower than those on consumer vehicle loans. These kind of facilities are common amongst those who travel a large amount, are not self employed or are seeking an asset for business use, just not there own. Real estate agents and business development managers are examples of occupations where we see this more frequently. A letter from either an accountant or their employer will be required to verify that the asset is used for over 51% of business use. Other product features are the same as a Chattel Mortgage.
Pros
  • Provides 100% finance
  • Provides greatest flexibility
  • More competitive rates than that of the consumer
  • Potentially eligible for a low doc product which isn’t available under the consumer channel
Cons
  • Break costs will apply in the event of early payout (varies lender to lender)
  • Once established, repayment arrangements are fixed
  • Consumer not protected under the standard NCCP policy as this product is not regulated
  • Must provide written confirmation from employer or accountant to confirm eligibility


Financial Lease

 
A financial lease is an agreement between the financier (lessor) and client (lessee) for an agreed set term. The asset is owned by the lessor. However, on completion of the lease, ownership reverts to the lessee. There is a residual payment at the end of the lease which is determined on a 'pre-estimate' of the value of the goods at the end of the term. This is set based on  life charts determined by current ATO Guidelines. A supplier invoice is made to the lender for delivery to the client. All obligations for registration, insurance repairs and maintenance rests with the lessee, however, insurance and negative equity are not generally added to financed amount.
Pros
  • Provides 100% finance
  • High depreciation items may receive a more favourable interest rate
  • Subject to lender approval, a lease can be transferred to another lessee (in the event of a sale of a business)
Cons
  • Less flexibility in structuring payments as residuals must conform with ATO guidelines
  • May have a higher break cost
  • Financing costs may be higher for Luxury cars (determined by ATO limits)


Novated lease

 
A novated lease is the financing of motor vehicles for use by employees under a salary package where the employer will often deduct rental from a pre tax salary. The lessor and lessee enter a novation agreement to lease the vehicle for a set term. The asset is owned by the lessor, however, on completion of the lease term the lessor will provide the lessee an option to purchase the vehicle. All obligations for registration, insurance, repairs and maintenance rest with the employee. Should the lessee’s employment cease during the term, all obligations for payment rest with the lessee, however, novation agreements are portable contracts and can be transferred to a new employer. As with a finance lease, the residual value is based on the effective life of the asset (under ATO guidelines).
Pros
  • As for a Finance Lease, plus
  • Can incorporate a fully maintained option with some lenders
  • Financial benefits –payments are pre-tax
  • Enables the employee to drive the car of their choice which they can take with them if they change jobs
  • For the employer, it eliminates the burden of listing the vehicle on the company books and having to dispose of it should the employee leave
Cons
  • Same as finance lease
  • Brokers inability to provide financial advice in transaction
  • There must be a residual which is determined by the ATO (eg: 5 year term must have 28.3% residual)


Fully maintained novated lease

 
A fully maintained novated lease has the same features as a novated lease, however, all operating costs are calculated for the vehicle and the monthly costs are also debited from the pre tax salary.

*As mentioned, NLG Leasing do not offer this product type and most employers will have a financier specified within the novated leasing terms and conditions.


Just remember, even though you now have more of an understanding around the different product types, you should always refer clients back to their accountant for advice on which product is right for them. Ownership of asset can have tax implications. The way the loan is structured will impact this so always make sure your clients know that the advice is general in nature.


Happy to help.

If you are looking for a solution to assist your consumer and commercial clients with all asset, equipment and cash flow finance solutions - but don’t yet have the knowledge and can’t justify the high costs associated with multiple accreditations, specialist systems or a full time specialist on the payroll – then NLG Leasing is the right business partner for you. If you would like more assistance, please contact the NLG Leasing team on 1300 722 011 or email support@nlgleasing.com.au

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