Choosing the right novated lease provider
There are a few important considerations you should make when selecting your novated lease provider that go beyond your lease payments. Spending some extra time to choose your provider can make a massive difference to your overall leasing experience.
The hidden cost of budget providers
Novated leasing presents an opportunity for significant financial benefits. However, it's essential to acknowledge that not all providers are created equal.
Opting for budget providers may seem attractive initially, but it's critical to recognise that a novated lease is a financial service. The short term gain of a cheaper provider isn’t worth the risk of an improperly managed lease. We outline some of the important considerations you should make regarding your lease before signing any paperwork.
Signing a lease is just the start
Novated leasing can be an impactful way of reducing the financial burden associated with vehicle ownership. While we recommend comparing quotes to find the best deal, it’s important to understand that novated leasing is a financial product and can lead to poor outcomes if not managed correctly.
It’s important to select a provider that realises that signing up for a lease is only 20% of the equation, and how your lease is managed over the full term makes a massive difference to the final outcome.
Compliance is key
The Australian Taxation Office imposes strict rules and regulations on novated leases. Ensuring your chosen novated provider understands and complies with ATO regulations is a critical consideration. Non-compliance can lead to serious complications for not only you but also your employer. Two important considerations to make are possible employer liability and residual values.
Employer liability
While employees are primarily responsible for their novated lease, an employer is still involved in the process and can be liable for Fringe Benefits Tax if the lease isn’t properly managed. A good novated leasing provider should be able to ensure and demonstrate a $0 liability for your employer. Potential FBT liabilities should be managed throughout the entire leasing period, as changing circumstances throughout the lease can have downstream impacts.
Acceptable residuals and balloon payments
The ATO provides very clear advice on acceptable residual values due at the end of a novated lease period dependent on the duration of the lease. While there is some flexibility on residual values, this is normally only reserved for vehicles with reasons for higher depreciation. Significant deviations from standard ATO-defined residual values in a quote should trigger deeper scrutiny to understand exactly how the residual was calculated. A slightly cheaper monthly cost isn’t worth the ATO coming down on you and your employer at residual time.
Some providers use an extra month hack, creating a 13, 25, 37, or 49-month lease, thinking that one month will justify a full year’s depreciation. This practice is risky and could get you and your employer in hot water with the ATO.
| Term of Lease | Minimum Residual |
|---|---|
| 1 Year | 65.63% |
| 2 Years | 56.25% |
| 3 Years | 46.88% |
| 4 Years | 37.5% |
| 5 Years | 28.13% |
Management throughout the full lease term
Some leasing providers go big on the initial sale and don’t follow through on the service. Novated leasing should be thought of as a partnership that continues for months or years once you’ve signed the agreement. Having a leasing provider with a local dedicated support team will make a massive difference to your overall experience and the ongoing management of your lease.
Financial data management and security
Be vigilant about the destination of your personal data. Providers using off-the-shelf novated leasing products may store your information with third parties, introducing additional risks related to data and cyber security. When dealing with personal financing information, you want to know who has access to your data and how it’s being secured.
We believe this is absolutely critical and it’s the reason we’ve invested heavily in our own proprietary technology to keep your data safe.
Transparency and accounting throughout the lease
As a financial product, it’s important that you can check your novated lease balance effortlessly. The last thing you want is to make payments over 5 years only to discover you’ve been under-servicing your lease. An opaque provider might hinder your ability to stay financially aware. Ensure transparency to make informed decisions on your financial journey.
A lease agreement made just for you
Some providers opt for a cookie-cutter approach to leases, prioritising the speed of closing a deal over getting the best outcomes for you. Make sure your novated leasing partner spends the time to properly understand your expected usage and vehicle needs both at the initial quoting stage and throughout the lease so that changes in your circumstances are accurately reflected over the lease term.
Consider if your budget matches your actual or anticipated needs
Accurate budgeting is pivotal in novated leasing. Incorrectly managed budgets can result in unforeseen financial burdens for both employees and employers. A good novated leasing provider should ensure that your initial budget is aligned with your expected usage and spend, but also keep an eye on your account over the duration of your lease. Circumstances and usage can change often, so you should select a provider that will take an active role in managing your lease to prevent bill shock or other poor outcomes at the end of your lease.
Appropriate levels of insurance cover
Take a moment to scrutinise your novated lease insurance to ensure it aligns with your unique needs. Unforeseen gaps in coverage could leave you vulnerable if you need to make a claim. Your insurance budget being much lower than other quotes from leasing or insurance providers may be a red flag that you’re not appropriately covered. Assess and tailor your insurance to secure a worry-free journey.
The complete employer guide to novated leases
Read the complete novated leasing guide for employers, covering everything from what a novated lease is to the benefits, considerations, and set up process.
Get in touch to learn more about choosing the right provider
Our team is happy to guide you through any questions or concerns about novated leasing. We can also help you work through a quote from another provider, no strings attached.
Leave your details or give us a call on 1300 888 594 and our team will be in touch.