What is a car allowance?
A car allowance is a sum of money given to an employee for the upkeep of their company car. It may be included in their salary as an additional benefit. The money is then used to pay for goods and services related to the maintenance of the car. This may consist of cleaning the car, fuel, inspections and repairs.
These arrangements differ from employer to employer, but all terms are generally included in the contract of employment. The contract may include important information such as:
- How fuel and other costs are to be paid
- Whether the car can be used for purposes other than work
- Upkeep and maintenance responsibilities
- Who can drive the car
However, if the car is kept at home and you use it to drive to and from work, this is generally an indication that the vehicle can be used for private purposes.
Does car allowance count as income for mortgage?
Banks and other lenders don’t always use common sense when calculating your income to assess your loan application.
Many don’t include a company car allowance as part of your income, limiting the amount you are entitled to borrow.
However, some lenders will take a vehicle allowance or company car benefit into account. Read on to find out how to maximise the amount you can borrow.
How do the banks view these benefits?
Although a car allowance forms part of your salary, it’s not like your base salary. Many lenders believe that any additional funds received, will be used solely to maintain the car and not for any other purpose such as a mortgage repayment.
Most banks ignore vehicle allowances because they assume that these are used to pay for travel costs incurred. Some believe that a company car itself isn’t a “cash” benefit that can be spent but rather a saving on your everyday living expenses.
Which lenders include car allowance?
Our best lender for car allowances/company cars will take 100% of the car or travel allowance you receive into consideration or will add $5,000 to your assessable income when calculating your borrowing capacity.
A few lenders can even consider travel allowances and other benefits assuming that they are not reimbursements for costs you have incurred.
How much can I borrow?
With our best lenders you can borrow up to 95% of the property value while including this additional income. Many other lenders are constrained by their Lenders Mortgage Insurer (LMI) when taking this income into account and as a result cannot lend more than 80% of the property value.
You can also use meals and entertainment allowance payments if they are ongoing and you have been receiving them regularly.
Who gets a car allowance?
Employees who work for large companies and use a car in their role are generally entitled to a car allowance. Some individuals may work as sales representatives and may be required to travel long distances by car to reach customers and clients. Others may use a car to run work-related errands or travel to work events.
If you’re an employee who requires a car to carry out tasks, you may be eligible for a car allowance. The amount that you are entitled to receive differs according to your job and employer. However, there are standard tax deductions available that you can claim.
For more information on whether your car allowance can be included as income, enquire online or call 1300 889 743 to speak to our expert mortgage brokers today.
Apply for a home loan today!
Here at Home Loan Experts, our mortgage brokers have extensive knowledge of the guidelines used by Australian lenders!
If you are looking to purchase your first home, finance a construction project or purchase an investment property, please enquire online or call us on 1300 889 743 to discuss your situation with one of our expert mortgage brokers.