When it comes to getting behind the wheel of a new car, we are often faced with a multitude of financing options. From car loans to unsecured loans, dealer finance and novated leasing - the possibilities seem endless. Amidst the sea of options, novated leasing is a popular choice, though it can be a bit of a mystery. Is novated leasing worth it?
If your current car is on its way out and you’re looking into your options, both a Novated lease and car loan allow you to finance a new or used car that can be used 100% for personal use. You have a fixed payment term and regular repayments covering the vehicle cost. Both can work really well for people.
Unlike other financing options, a novated lease can instantly slash thousands of dollars off your new car's price tag by exempting you from paying the GST. But the benefits don't stop there. Because a novated lease is paid from your salary before tax it can offer you tax savings. You can also roll in all your car's running costs— fuel, registration, maintenance, and insurance—boosting your savings even more.
Interested in learning more about how you can put more dollars back in your pocket on pay day? Let's weigh up the pros and cons of novated leasing to help you decide whether it is the right option for you. By the end of this read, you'll be able to confidently answer the question “Is novated leasing worth it?”
From significant tax savings to the joy of driving a brand-new car or the latest electric vehicle, novated leasing offers a wealth of benefits that can transform your car-buying journey.
One of the biggest attractions to novated leasing is the tax savings. As the lease payments are made from your pre-tax income, it reduces your taxable salary. This means you pay less in income tax. And for many, this results in substantial savings over the term of the lease.
Here is an example novated lease comparison against other financing options:
This comparison shows the potential savings on tax a novated lease offers compared to financing a vehicle or paying for it outright with cash, based on a purchase of a Tesla Model 3. (Terms and conditions apply).
Novated leasing often comes as a package deal that includes maintenance, registration, insurance, tyres and even fuel. This all-in-one solution simplifies car ownership, as you don't have to worry about separate payments and paperwork for these essentials. Plus, you're not limited to a specific make or model, giving you the freedom to choose a car that suits your lifestyle and needs.
With a Novated lease, you'll know exactly how much you're spending each month. This can make budgeting easier and more predictable, as there are no unexpected costs for repairs or maintenance – these are typically covered in the lease agreement. Calculate your monthly running costs here or see how much you could potentially save with a Novated Lease here.
As novated leases are usually for a term of three to five years, you have the opportunity to upgrade your vehicle regularly. This means you can always drive a new car equipped with the latest features and technology without the hassle of selling or trading in an old car.
When you lease a car through a novated lease, the leasing company can claim the GST on the purchase price of the vehicle. This saving can be passed on to you, reducing the overall cost of the vehicle lease.
The government's push for a greener Australia means that the electric vehicle discount is benefiting more Australians than ever. When you pair this with the exceptional advantages of a novated lease, there's never been a better time to go electric and save money.
By selecting from the wide variety of novated lease electric vehicles and making your car payments from your pre-tax salary, you can avoid paying upfront GST costs—provided the vehicle meets the ATO's FBT-free guidelines for eligible PHEV and electric vehicles.
Is novated leasing worth it? While novated leasing has its perks, it’s important to consider the potential downsides that can be a drawback for some. Let’s explore these drawbacks to ensure you’re fully informed before committing to a novated lease.
Novated leases can often be tied to your employment. If you change jobs, you may need to make arrangements to transfer the lease to your new employer or take over the payments yourself.
Because novated leasing revolves around fixed monthly payments, it's crucial to ensure you can comfortably afford these payments until the end of your lease term. If your financial situation changes unexpectedly, it could cause a financial setback.
At the end of a novated lease there’s a residual payment, also known as a balloon payment or lump sum to cover. You usually have the option to buy the car for its residual value. It represents the remaining (residual) value of the vehicle at the end of the lease term. The Australian Taxation Office (ATO) sets these minimum values allowed for different lease terms.
Want to own your car outright? Pay off the lease balance and it’s yours. When selling, the residual payment is often less than the car’s value, so you might pocket the difference.
Continue enjoying the perks of a novated lease with the latest model upgrade. Keep your payments the same and drive away in a new vehicle of your choice.
If you're happy with your car and want lower payments, you can refinance the residual amount and extend your lease to reduce your repayments.
If you decide to end your lease early, keep in mind that Novated Leases are generally not intended for existing early. Therefore, it's a good idea to consult with a Novated Choice specialist who can help you determine the most suitable lease term for you, whether it's between 1 year to 5 years. This will help ensure that the lease aligns well with your needs.
Before jumping into novated leasing, it’s essential to weigh up the factors that could impact your decision. From your financial situation and driving habits to tax implications and job stability, there’s a lot to consider.
Look at your income, expenses, and savings to see what you can comfortably spend on a car lease. While novated leasing can save you on taxes and offer lower payments, it's still a big commitment. Ensure your income is stable and that the lease fits your budget without straining your finances.
Job stability matters. If your job is secure, the risk is low. But if you’re thinking of changing jobs soon or working in a high-turnover industry, a novated lease can get tricky. Switching jobs means renegotiating the lease with a new employer or taking over payments yourself, which can be tough financially.
Choose your vehicle and lease terms carefully. Novated leases offer many new car options, but pick one that fits your needs and budget. Consider fuel efficiency, maintenance, and insurance costs. Check lease details like duration, residual value, and any fees for early termination. Ensure the terms match your long-term plans.
Novated leases can offer tax savings, but these vary by person. Do a cost-benefit analysis to see the real impact. Compare a novated lease to other options like car loans or buying outright. Consider tax savings, monthly payments, maintenance, and end-of-lease costs. This will help you decide if a novated lease is worth it.
So, is novated leasing worth it? The tax benefits, convenience, and ability to drive a new car every few years are compelling reasons to consider a novated lease. However, it's crucial to weigh these advantages against potential disadvantages such as job stability and financial commitments.
Ultimately, the decision comes down to your circumstances and financial goals. If you're considering a novated lease, take the time to do your research, consult with experts like the friendly team at Novated Choice, and carefully assess whether this option aligns with your lifestyle and needs.
At Novated Choice, we're dedicated to making novated leasing accessible to all Australians regardless of income level or industry. We are here to simplify the process and empower you to make informed decisions about your car finance options on a new car, or an EV novated lease. Discover how Novated Choice can help you drive your dream car while maximising your savings.
Experience the power of choice. You choose the car, we’ll find the savings. Talk to one of our consultants to get a quote today.