For those unfamiliar with the term ‘Novated Leasing,’ it may seem like a confusing and unnecessary way to purchase a new car. Still, novated leasing is well worth learning about.
The traditional way to purchase a new car would involve buying it outright through the dealership or purchasing through various car finance options like car loans and novated leases. However, there is a way to see you drive the car you love while saving your bank account a fortune. Let us introduce you to the world of novated leases.
What is a Novated Lease in Australia?
While paying for something you don’t own may seem like a scam, leasing instead of buying your next new car can save you thousands yearly!
In Australia, it’s referred to as a novated lease. In short, it means adding a new party (your employer) to the traditional purchasing agreement. A novated lease arrangement is a financial setup where an employee selects a vehicle, and a lease agreement is formed collaboratively between the employee, employer, and a leasing company. This means that your novated lease is a way for you to pay for your vehicle and on-road costs through the means of salary packaging. Your employer will pay for your car payments from your pre-tax income.
How Does Novated Leasing Work?
Average novated leases range from two to five years. When your leasing contract is up, you can upgrade your car with a new leasing agreement or pay a predetermined buy-out fee, which allows you to keep the vehicle.
Unlike a car loan, the payments for a novated lease are pre-tax, meaning that your salary goes further and your overall taxable income is lowered simultaneously!
It’s essential to keep in mind that you’re not just renting out a car. That’s something you do at an airport. Novated lease work involves a three-party contract between yourself, your fleet provider, and your employer. While the payments are your responsibility, your company takes the loan on your behalf.
The difference here is that your monthly payment includes all of your car’s running expenses and benefits, no matter what scale of tax you pay. The leasing company manages financial aspects, including GST on the lease and running costs. Never worry about fuel prices or expensive services again!
Benefits Of Novated Car Leasing
If a novated lease appears to be the right fit for you and your employer, it comes with many benefits. The first is that it is such a tax-effective car ownership solution – you’re just paying for the running costs of your car using your pre-tax income! A fully maintained novated lease is a comprehensive option that covers all running costs, making it a convenient and cost-effective choice.
Secondly, you are given increased buying power through a fleet company. A fleet provider will provide you with significantly more discount than going through a regular dealership. Additionally, fringe benefits tax (FBT) can be mitigated through structures like the Employee Contribution Method, and there are recent exemptions for electric and plug-in hybrid vehicles under specific conditions, which can result in significant savings.
And lastly, you have the opportunity to update your car whenever your lease expires. It allows you to structure your novated lease to suit you, meaning you can plan when you can update or purchase your vehicle! A bonus is that all your on-road costs are taken care of as part of your novated lease payment.
If you want to enter the world of novated leasing, why not check out the Vehicle Solutions novated lease calculator to see if you are eligible and realise your potential leasing power.
Head over to the Vehicle Solutions website to find out more today!
Who Can Get a Novated Lease in Australia?
A novated lease is available to most full-time and part-time employees in Australia. A novated lease provider assists with vehicle sourcing, financing, and managing ongoing running costs, making the process convenient and beneficial. Both private sector and government employees are typically eligible, provided their employer offers salary packaging options. It’s an excellent choice for those looking to make vehicle ownership more tax-efficient.
Choosing the Right Vehicle
Choosing the right vehicle for your novated lease in Australia is essential. With a novated lease, you can lease any car you want, whether a new or used vehicle. However, there are some considerations to consider when selecting a car.
Any car can be leased.
One of the standout benefits of a novated lease in Australia is the freedom to choose any car that suits your needs and preferences. Whether you’re eyeing a brand-new model fresh off the lot or a reliable used vehicle, a novated lease offers the flexibility to match your lifestyle and budget. This means you can drive the car you love without the hefty upfront costs typically associated with purchasing a vehicle outright.
Considerations for selecting a vehicle
When selecting a vehicle for your novated lease in Australia, several factors should guide your decision:
- Your budget: Considering how much you can afford to spend on lease payments and running costs is crucial. A well-planned budget ensures you can comfortably manage your finances throughout the lease term.
- Your lifestyle: Think about how you plan to use the vehicle. Do you need a spacious SUV for family trips, or is a compact car more suitable for city driving? Identifying your needs will help you choose a vehicle that complements your daily routine.
- Fuel efficiency: Fuel efficiency is a crucial factor impacting running costs. Opting for a vehicle with good fuel economy can save you money on fuel expenses over the lease term.
- Maintenance costs: Research the maintenance costs associated with the vehicle. Some cars are more expensive to maintain than others, which can add up over time.
- Luxury car tax threshold: If you’re considering a luxury vehicle, be aware of the luxury car tax threshold. This tax can significantly impact your lease payments, so factoring it into your decision-making process is essential.
By carefully considering these factors, you can select a vehicle that meets your needs and maximises the benefits of your novated lease.
Car Running Costs
Car running costs are an essential consideration when deciding on a novated lease. Running costs include all the expenses associated with owning and operating a vehicle, and understanding these costs can help you make informed decisions and manage your budget effectively.
What are car running costs?
Car running costs encompass a variety of expenses, including:
- Fuel/Charge: Fuel costs are a significant part of your running costs. Whether your vehicle runs on petrol, diesel, or electricity, you must consider how much you’ll spend on fuel.
- Maintenance: Regular maintenance is essential to keep your vehicle in good condition. This includes servicing, repairs, and replacement parts. Some cars have higher maintenance costs than others, so it’s worth researching this aspect.
- Insurance: Insuring your vehicle is mandatory and can be a considerable expense. Comprehensive insurance and third-party insurance are common types of coverage that you’ll need to budget for.
- Registration: Registering your vehicle involves annual registration fees and stamp duty. These costs vary depending on your location and the type of vehicle you lease.
- Tyres: Tyres need to be replaced periodically, and the cost of new tyres and tyre maintenance should be factored into your running costs.
- Other expenses: Additional expenses such as parking, tolls, and accessories can also contribute to your overall running costs.
By understanding and planning for these running costs, you can ensure that you get the most out of your novated lease and keep your expenses under control. This comprehensive approach will help you enjoy the benefits of novated leasing while minimising financial surprises.
What Happens at the End of the Lease?
When your lease term ends, you have three options:
- Return the Vehicle: Hand the car back to the finance provider and start a new lease.
- Extend the Lease: Continue leasing the exact vehicle under a renewed agreement.
- Purchase the Vehicle: Pay the residual (balloon) payment to own the car fully.
Why Choose Us?
Vehicle Solutions in Australia makes novated leasing easy and stress-free. With extensive experience finding the best lease options for employees, we offer competitive rates, expert support, and user-friendly tools to manage your lease. Let us help you save on taxes and drive the car of your choice without the hassle.
Frequently Asked Questions(FAQs)
What Is The Best Term For A Novated Lease In Australia?
The best term for a novated lease typically ranges from 2 to 5 years. It depends on your financial goals and personal preferences. Shorter terms may have higher payments but allow quicker upgrades, while longer terms can spread costs over time and offer lower monthly payments.
What Is A Good Lease Duration?
A good lease duration is usually between 3 to 5 years. This balances manageable monthly payments and a practical timeline for vehicle ownership. It’s important to consider how long you plan to keep the car and your expected mileage.
When Should I Be Worried About My Lease Length?
You should reconsider your lease length if the term is too long and exceeds the expected useful life of the vehicle or if the lease term doesn’t align with your financial goals. Also, be cautious of potential balloon payments or high residual values at the end of an extended lease.
How Long Does It Take To Process A Novated Lease in Australia?
Typically, it takes about a week, but the timeline can vary depending on whether your employer is already set up for novated leasing and how quickly you find the vehicle you’re after. If your employer isn’t yet participating in novated leasing, we can assist in getting them onboard, and the process can be set up relatively quickly. In urgent situations, we have turned a lease around within 24 hrs.
How Do You Calculate Lease Length?
Lease length is calculated based on your chosen term, usually in years (e.g., 2, 3, or 5 years). The term impacts your monthly payments, residual value, and total cost of the lease. The longer the lease, the lower the monthly payments, but this also affects the residual value you’ll need to pay if you decide to buy the car at the end of the lease.
