Novated Lease pros and cons
Weighing up your novated lease advantages and disadvantages
Committing to any car finance is a relatively long-term deal, so you should always weigh up your options. Just like car loans are ideal for many car buyers, and chattel mortgage car finance works great for some sole traders, novated leases can turn out remarkably well for some full-time employees that have access to a salary sacrifice option through their employer. Different factors influence whether one will work for you, and we're going to examine all of them here. One thing is for sure, though. Novated leasing is a unique form of car finance which can offer huge tax advantages in the right circumstances, so it's a great place to begin considering your car finance options.
Sourcing a novated lease through Savvy makes sense
Novated lease car finance is a three-way agreement between you, your employer (if novated lease is part of your employment package), and a finance company. It's a form of salary sacrificing that allows you to run a car from pre-tax earnings, which means you pay less income tax. Many employers don't stick with a single salary packaging provider and let you source one yourself – which is an excellent thing. That's because, like all areas of finance and business, competition means better deals – and that's where Savvy comes in. When you shop for a novated car lease via Savvy, you get access to some of Australia's most competitive lenders and options.
Why choose Savvy?
Advantages and disadvantages of novated leasing
Depending on the car's value, one of the primary benefits of a novated lease is going to be the fact you'll pay less income tax. Let's say you earn $100,000 a year and choose to pay $1,000 per month for a fully maintained novated car lease. That means your taxable income drops by $12,000 to just $88,000 during the three-year term. At the current tax rate of 32.5%, that equates to a substantial income tax saving.
Novated leasing is a three-way affair, meaning different parties get various benefits from the deal – but some of the benefits the leasing company gets are passed on to you. The main thing to note here is GST on the purchase price of the vehicle. When the novated lease company buys the car, they get to claim the GST back, so you get charged on the vehicle's cost before GST gets added. Novated leasing is probably the only way you can access ex-GST rates with non-business car finance – and it represents a significant saving. On a $40,000 vehicle, for instance, that equates to $3,600 of your hard-earned money . Go higher end and buy a $100,000 car, and you’re saving more than $9,000 for no other reason than because you chose a novated lease – and that’s before you take any other savings into account.