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Novated Lease Pros and Cons

Novated Lease Pros And Cons: Is It Worth Your Investment?

Weighing up the pros and cons of novated leasing today.

Novated Leasing in 2024

Novated leasing has become an increasingly popular option for individuals looking to finance a car. It offers unique advantages and disadvantages that should be carefully considered before making a decision.
In this comprehensive guide, we will explore the pros and cons of novated leasing, with a particular focus on electric vehicles. By the end, you’ll have a clear understanding of whether a novated lease is the right choice for you.

Novated Lease Pros and Cons at a Glance

Novated Lease Pros and Cons: The Advantages

Novated lease pros include tax benefits such as GST exemption and income tax savings on your car purchase. However, the advantage is amplified for electric and plug-in hybrid vehicles, as they often qualify for additional fringe benefits tax exemptions. This translates to significant extra tax savings for individuals opting for environmentally friendly vehicles.

A major benefit of novated leases is the ability to include car running costs in your lease, leading to savings on GST and streamlining expenses into one convenient payment. This feature is particularly advantageous for electric vehicle owners, as it covers expenses related to charging, maintenance, and other operational costs associated with eco-friendly driving.

Contrary to common misconceptions, novated leases offer flexibility for personal use of the vehicle, including electric cars. This eliminates the notion that novated leases are exclusively for work-related vehicles, allowing individuals to enjoy their electric vehicles for both professional and personal purposes.

Novated leasing provides an option to customise your car with accessories, and this extends to electric vehicles as well. Moreover, novated lease pros include a GST discount on extras added before delivery, making it cost-effective to enhance and personalise your electric vehicle according to your preferences.

Novated leases for electric vehicles can lead to substantial savings on car running costs, covering expenses such as fuel (or electricity), insurance, registration, and servicing. These savings contribute to the overall affordability and sustainability of owning an electric vehicle through a novated lease arrangement.

Novated Lease Pros and Cons: The Disadvantages

Novated leasing is typically available to salaried employees, as not all employers offer it as a benefit. This limitation excludes self-employed individuals or those on non-salaried payment structures from accessing this financing option.

Unlike traditional car loans where ownership transfers upon purchase, novated leases transfer ownership of the car at the end of the lease term. This means you do not own the vehicle during the lease period, limiting your ability to modify or sell the car before the lease concludes.

Novated leases may offer less flexibility for making extra repayments compared to traditional car loans.

Certain vehicle types, such as non-passenger vehicles or luxury vehicles, may not be eligible for novated leases. This limitation restricts the range of vehicles you can choose from under a novated lease arrangement.

Novated leases often require a residual payment at the end of the lease term if you wish to purchase the vehicle outright. This payment can vary based on the lease agreement and the vehicle’s residual value, so it is advisable to factor this in to your financial planning.

Significant Extra Tax Saving on EVs and PHEVs

The tax advantages of novated leasing are particularly pronounced when it comes to electric and plug-in hybrid vehicles. Choosing an eligible electric or plug-in hybrid vehicle for your novated lease can result in substantial savings.

The combination of up-front GST savings, income tax savings on lease payments, and GST and income tax savings on running costs make novated leasing an attractive option for electric and plug-in hybrid cars. In fact, it can be cheaper to pay for an electric car or plug-in hybrid through a novated lease than to buy and run the same car outright with cash.

To illustrate the potential savings, let’s compare a novated lease with other financing options. Consider the example of a 2023 Tesla Model 3 RWD in NSW, with a purchase price of $66,100 and an annual pre-tax salary of $120,000. Over a 5-year term, a novated lease can offer significant savings compared to financing the vehicle with a car loan where the monthly repayments can range from 6% to 10% p.a. interest or $1,197 to $1,315. This comparison includes car running costs for five years, based on driving 15,000km annually.

Calculate Your Savings

To assess the potential savings and benefits of a novated lease specific to your situation, it’s recommended to use a novated lease calculator.

Final Reminders from Novated Leasing Online

Before making a final decision, it’s important to consider all of the novated lease pros and cons. Assess the benefits and drawbacks, explore different vehicle options, and consult with professionals who can provide expert advice.

Novated leasing offers unique advantages, especially for those interested in electric and plug-in hybrid vehicles. The potential tax savings, convenience of bundled running costs, and flexibility in vehicle choice make it an appealing option for many individuals.

Tips for Getting the Best Deal

When entering a novated lease agreement, it’s crucial to secure the best possible deal. Here are some tips to consider:

Explore different novated lease providers and compare their offers. Look for competitive interest rates, flexible terms, and additional benefits.

Take advantage of fleet discounts offered by novated lease companies. These discounts can significantly reduce the purchase price of the vehicle.

As discussed earlier, electric and plug-in hybrid vehicles offer unique advantages in terms of tax savings and running costs. Explore these options and assess their suitability for your needs.

Consult with a financial advisor or novated lease specialist who can guide you through the process and help you make informed decisions.

By following these tips, you can maximise the benefits of a novated lease and ensure you’re getting the best deal possible.

It’s important to understand the implications of Fringe Benefits Tax (FBT) on novated leases. FBT is a tax payable on certain benefits provided by employers to their employees. In the context of novated leasing, FBT can apply to the benefit derived from using a vehicle provided by your employer.

However, as mentioned earlier, electric and plug-in hybrid vehicles are exempt from FBT on novated leases. This exemption significantly enhances the cost-effectiveness of choosing an electric or plug-in hybrid vehicle for your novated lease.

For other vehicles, FBT may still be applicable. It’s essential to consult with your employer or a tax professional to understand the specific FBT implications in your situation.

After weighing the pros and cons of novated leasing, it’s crucial to consider your individual circumstances and preferences. Novated leasing can be a cost-effective and convenient option, especially for those interested in electric or plug-in hybrid vehicles. However, it may not be suitable for everyone.

Consider factors such as your salary, usage patterns, preferences, and financial goals. Assess the potential tax savings, running costs, and overall convenience offered by a novated lease. Comparing it to other financing options, such as traditional car loans or cash purchases, can also provide valuable insights.

Ultimately, the decision should align with your financial situation and long-term goals. Consult with professionals, conduct thorough research, and carefully evaluate the benefits and drawbacks before making a final decision.