Is novated leasing right for me?

What is a novated lease?

Novated leases aren’t the same as car loans – the big difference being that novated lease payments are taken out of your pre-tax income. In short, this means you get to use your gross salary (your salary before tax) for your car payments, and lower the amount of tax you need to pay by reducing your taxable salary amount. So, in a way it’s paying a loan from money you would otherwise never see. 

If that sounds good, there are other differences too. Novated leases allow you to package up more than just your car when you salary sacrifice; you can also include your fuel, roadside assistance, servicing costs, insurance, rego and tyres – all from your pre-tax income. You can avoid paying GST too – not only on the car but also on running costs. And you can get access to fleet (wholesale) prices, to potentially save thousands on your new car. 

How a novated lease works

To be eligible for a novated lease, you do need to have an employer, as effectively the lease operates between three parties: you, your employer and your novated lease provider. Your employer will manage payments out of your pre-tax income and then pay your salary, super and tax as normal. (Note: by “employer” we mean a company that pays you via PAYG. You can be self-employed, provided that you have a company and you pay yourself through PAYG).

If you switch jobs, you will need to take on the payments yourself until you find a new employer – and your new employer would need to be set up for novated leasing (which is fairly simple – we have a section for employers and a handy employer guide with steps).

That said, we can help handle the budgeting of your lease. At the start of the lease we can forecast your regular usage – fuel, servicing and other costs – and calculate a monthly repayment that’s affordable and as smooth as possible, so you avoid the nasty shock of a $900 rego bill, for example. You provide any receipts to us for accounting – fuel or other car costs out of pocket – and we’ll give you a fuel card that you can use for convenience, which simply gets added to your account and already included in your monthly payments.

We’ll make sure that your account keeps a buffer that can come into play if you have any unexpected costs. At the end of your lease, you can then use the balance left on your account to go towards car enhancements, or we’ll refund you the difference.

The ‘L’ word

Given its name and affiliation with the “L” word (‘lease’, of course!), it’s natural to worry about the liabilities and lack of good money management associated with leases too (“the bad rap”). But really the novated lease was created to allow people access to their pre-tax income in order to make the money they earn work harder for them. There was a time when buying a car outright – a huge outlay on a depreciating asset – was the only way to avoid silly fees on car finance.

Novated leases can be like the best of both worlds. You can own your car at the end of your lease, but because you’re using your pre-tax income, saving on GST and accessing wholesale pricing, you don’t face the financial burdens that come with car loans or buying outright.

It’s important to note that there are interest payments with novated leases, but the key to why they’re so popular to those who know about them lies in the fact that interest is far outweighed by the cost savings. The ability to access your pre-tax income and reduce your tax bill is the clincher. This is what sets them apart from standard car finance that has become less vogue in an increasingly frugal world.

If you’re still unsure and want an obligation-free chat, give us a call – we’re the novated lease education experts and love making things simpler. We also pride ourselves on finding the best package for everyone’s specific situation. So call us on 1300 888 594, or you can request a callback at a time that suits. If you prefer, you can send us a message and we’ll message you back.