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Novated Lease Interest Rates

Learn about the factors influencing novated lease interest rates, additional costs involved in leasing and other types of vehicle leases available with Savvy.
  Written by 
Adrian Edlington
Adrian Edlington is PR & Communications Manager at Savvy. With a keen interest in personal finance, car loans, the mortgage industry, cost of living pressures, electric vehicles and renewable technology, Adrian's research includes conducting primary data surveys and analysis of up-to-the-minute secondary Australian data sources. His work on behalf of Savvy has been featured on ABC.net.au The Conversation, the Sydney Morning Herald, AFR, News.com.au, The Age, Herald Sun, Adelaide Now, SBS On The Money, 7News, Car Expert, Which Car, Drive.com.au and more. In his spare time, Adrian enjoys mountain biking and business podcasts.
Our authors
 
  Reviewed by 
Bill Tsouvalas

Reviewer

Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
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Published on March 17th, 2021

Last updated on May 22nd, 2024



Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.
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There are various car loan and leasing options available to consumers in Australia, each with its own set of benefits and considerations. One popular choice is the novated lease, which allows employees to use pre-tax income to cover car lease payments and associated expenses. Before you sign up, however, it's crucial to understand the interest rates involved in a novated lease and how they can impact your overall lease cost. We take a close look at car lease interest rates in this guide.

Do I need to pay interest on a novated lease?

Yes, you will need to pay interest on a novated lease and it is an essential consideration when considering such a financial arrangement.

Much like a car loan, interest is applied to a car lease to compensate the lender for the risk of lending money. Essentially, the interest rate is the cost of borrowing that money over the lease term. It accounts for factors such as the lender's cost of funds, administrative expenses and the risk associated with lending to the borrower.

The interest rates on novated leases are largely similar to car loan interest rates. In most cases, car lease interest rates start from 6.5%, but this can vary depending on circumstances.

What factors influence my novated lease interest rate?

Several factors can influence the interest rate you receive on your novated lease. This includes:

  • Credit score: a strong credit score signifies you're a lower risk for the lender to default on the lease payments. This typically translates to a lower interest rate offered.
  • Lease term: shorter lease terms might have slightly lower interest rates compared to longer terms. This is because with a shorter term, there's less time for the car to depreciate, which reduces the risk for the lender.
  • Car age and value: lenders may offer lower rates for vehicles with higher resale values or those considered less risky from a financing perspective.
  • Competition in the market: interest rates might be more competitive if there are more providers to choose from. This can work to your advantage as providers offer lower rates to attract customers.
  • Your employer's relationship with lenders: some employers might negotiate preferential rates with specific leasing companies. Check with your HR department to see if they have any pre-established partnerships with novated lease providers that could offer you a more favourable interest rate.

To get the best car lease interest rate you can, it’s useful to compare providers and get quotes from multiple novated lease companies. You can use online comparison tools and finance brokers to help you find the best deal.

What other costs are involved in a novated lease?

While the interest rate plays a significant role in determining the cost of a novated lease, it's just one piece of the puzzle. Several other factors contribute to the overall expense:

  • Finance and admin fees: these are additional charges associated with setting up and managing the lease.
  • Choice of vehicle: the make, model and specifications of the car you choose will impact the overall cost.
  • FBT status of the vehicle: electric and hybrid vehicles are exempt from fringe benefits tax (FBT), which can result in lower costs compared to traditional petrol or diesel cars.
  • Driving distance: your annual mileage affects running costs, which can influence the lease price.
  • Car insurance: the cost of car insurance can vary based on factors like your driving history and the type of coverage.

What other types of vehicle leases are there?

Novated leases are not the only type of car lease in Australia. If you are a business owner considering vehicle leasing options, you may encounter different types of leases tailored to your specific needs. Here are two common types:

Finance lease

These leases offer flexibility for businesses looking to buy the vehicle at the end of the lease term. Much like a novated lease, there is a set lease period and then a residual payment at the end. While the company bears general car expenses such as registration, insurance and maintenance costs, they can claim GST, depreciation and interest paid on repayments.

Operating lease

Operating leases are suitable for businesses seeking shorter-term vehicle leases. At the end of the agreed period, the vehicle is returned. Businesses can regularly update or replace vehicles or equipment, and typically have the flexibility to cancel or change the lease to fit their needs. Maintenance and running costs are typically included in the lease repayments, and businesses can claim interest paid on repayments as a business tax expense.

Your business’s current financial health, plus factors like how much existing borrowing your company has, can significantly affect the interest rate you pay for equipment finance. A lender will check your accounts to ascertain how much you can borrow and how much that will cost. 

How do I calculate my car lease payments?

Leasing a vehicle can offer significant cost savings, whether it's for personal use or for your business. However, it's essential to have a clear understanding of all potential charges associated with the lease. Savvy’s leasing calculator will give you an idea of the full costs involved in your loan, including the impact of interest rates. You can access Savvy’s car leasing calculator here.

You will need to input the purchase price of the car and the agreed residual amount, then specify the lease term and the interest rate. You can adjust the numbers to explore different scenarios until you find a monthly repayment and lease term that align with your budget and preferences. Keep in mind, however, that all amounts given are estimates and may not reflect final quotes.

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  Written by 
Adrian Edlington
Adrian Edlington is PR & Communications Manager at Savvy. With a keen interest in personal finance, car loans, the mortgage industry, cost of living pressures, electric vehicles and renewable technology, Adrian's research includes conducting primary data surveys and analysis of up-to-the-minute secondary Australian data sources. His work on behalf of Savvy has been featured on ABC.net.au The Conversation, the Sydney Morning Herald, AFR, News.com.au, The Age, Herald Sun, Adelaide Now, SBS On The Money, 7News, Car Expert, Which Car, Drive.com.au and more. In his spare time, Adrian enjoys mountain biking and business podcasts.
Our authors
 
  Reviewed by 
Bill Tsouvalas

Reviewer

Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors

Published on March 17th, 2021

Last updated on May 22nd, 2024



Fact checked

At Savvy, we are committed to providing accurate information. Our content undergoes a rigorous process of fact-checking before it is published. Learn more about our editorial policy.

This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for car loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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