How to Know When It’s Time to Consider a Novated Lease for Your Next Car
After our homes, motor vehicles are typically the most expensive purchase that we make in our lifetime. It’s true that in Australia we really love our cars, and we like them so much that many of us are even prepared to go into significant debt to have them. However, being in debt can be notoriously uncomfortable and that’s why the idea of novated leasing has been gaining serious traction of late.
What is a novated lease?
Novated lease sounds like a term that you accountant might mutter under his breath as you check your watch to see how much more advice you’ll have to sit through before you can head to your local bar, but it’s certainly an idea worth considering if you like to be savvy with your money.
Novated leasing is a leasing model where you introduce a handy third party, which is typically your employer into the car purchasing arrangement. A novated lease essentially allows you to pay for your vehicle and associated running costs (like insurance, fuel and maintenance) out of your pre-tax salary. It results in you paying less tax on your take-home pay which means you’ll get more disposable income to spend on things you enjoy.
Why consider a novated lease?
Typically, when you sign a lease, you’ll be agreeing to a fixed term arrangement – anywhere from 2-5 years. At the end of that period, you can trade up for a newer, swankier model. It gives you the benefit of cruising around in a newer vehicle, and if you happen to get a bit bored of it, you’ll know that it won’t be long until you can change your wheels again.
If, on the other hand, you’ve fallen for your leased car’s charms, most lease arrangements will allow you to purchase your automobile for a pre-determined fee at the end of the contract. Here at Vehicle Solutions, we offer this option to all of our clients.
Additionally, novated lease cars are not subject GST when purchased. It is because the lending company acquires the vehicle on your behalf which translates into a meaningful 9% reduction in the price of the vehicle. Furthermore, you won’t have to pay any GST on running costs such as fuel and registration as these are packaged up into your lease arrangement and contributed through your pre-tax earnings.
All of this results in your net income increasing – you could think of it like getting a pay increase and a new car! If you’re wondering just how much you could save, then check out our free financial calculator to give you a better idea.
Is it the right time for me?
Novated leasing is an excellent way to manage your finances more effectively and ensure you get the best value for your money; however, it’s always important to asses your economic situation and go from there.
If you’re thinking that a novated lease sounds a little too confusing, then consider that if you opt for a traditional lease or buy a vehicle outright, then you’ll be paying for both options out of your post-tax salary. It may end up reducing the amount of disposable income you have each month, so it’s worth wrapping your head around the idea and crunching the numbers. If you’re still not sure, schedule an appointment with your financial advisor to discuss if it’s the best option for you in your current situation.