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Why Choose a Novated Lease over a Traditional Car Loan?

Novated leases are rapidly becoming the car financing option of choice for Australian residents.  This unique product is offered by employers throughout Australia, and people from Brisbane to Perth and everywhere in between are saving thousands during the course of their lease terms.

A novated lease is an easy and stress-free way of leasing nearly any car you want on your own terms as a simple deduction from your pre-tax salary.  Using a novated lease, your monthly lease payments and the running costs of your car of choice are bundled into a single monthly payment that is taken directly from your salary.  Not only does this eliminate payment worries, but some people are even able to use novated leases to move them into a lower tax bracket.  Due to these benefits and much more, novated leases are becoming increasingly popular throughout the land.

How a Novated Lease Works

A novated lease is basically a three way arrangement between a finance company, yourself and your employer.  Rather than having to make payments to the finance company directly, the company sends an invoice each month to your employer and your employer then deducts the monthly payments from your pre-tax salary.  It is a straightforward process that takes no extra effort on your part after being set up.

In addition to taking care of your lease payments, novated leases also include maintenance costs, vehicle registration, insurance and fuel cards.  Also, thanks to the tax status of your employer, you do not have to pay any GST (Goods and Services Tax) on the expenses or purchase price of your vehicle.   This is a terrific added bonus of this unique leasing arrangement.

 Advantages of a Novated Lease

More and more people are recognizing the value and savings of obtaining a novated lease rather than a traditional lease and experiencing the following benefits:

Increased Income

Since novated lease payments and running costs are deducted from your pre-tax salary, the amount of taxes you pay are decreased, which increases your total net income.  You also gain further savings through not having to pay any GST on the purchase price or any of your vehicle’s expenses.

One Monthly Payment

Perhaps one of the greatest benefits of a novated lease is that it takes care of all of your other vehicle-related expenses as well.  With a novated lease, you will no longer have to pay individually for insurance, registration, fuel, maintenance and so on, as they are all consolidated as part of the novated lease.

Your Choice of Vehicle

You might think with so many other benefits that you would be restricted in your vehicle selection, but this is not the case.  You can select a small economical car or a luxury SUV.  There is a finance option for whatever vehicle you choose.

Compared to a Car Loan

There are a number of calculators available that can tell you the monthly payment difference between a novated lease and a traditional lease.  An example of such calculator is the salary packaging calculator from Novated by Fleetcare – one of Australia’s largest independent salary sacrifice car loan providers.  With a traditional car loan, your monthly payments are not on a pre-tax basis.  Therefore, you do not get the tax savings of a novated lease.  The term is usually longer on a car loan and the interest rate could be higher as well, which makes the overall price you pay for a car much more expensive over the term of the lease.  Plus, novated leases cover all of the additional expenses, such as insurance, fuel and maintenance, which traditional leases don’t.  This equals even more savings.  When all of the benefits are considered, it is easy to see why Australians everywhere are choosing novated leases for their vehicle financing.