Next to purchasing your home, buying a car is usually the most significant purchase you are likely to make – along with the insurance for it. It makes sense that you should put some effort into it to make sure you end up getting value for money. That should not end with just choosing a make and model that you think offers really good value. How you choose to finance that will make a big difference in the total cost of ownership. We will look at one of the most cost effective options available, a novated lease.
Novated leasing is a lease involving three parties. The employee, the employer and the leasing company. The way that it differs from a standard lease is that the obligation to make payments on the lease is novated from the employee to the employer. This means that the employee remains the leaseholder and any advantages in terms of owning the car at the end of the lease stay with them. There are a number of advantages to this form of leasing for both the employer and the employee.
The advantage for the employer is that the obligation only lasts as long as the employee is employed by them. If the person quits or has their employment terminated then the obligation to make the payments shifts to the employee. Which means you will never end up making lease payments on a car that none of your employees is using. This gives employers the kind of flexibility they need and makes it much easier for them to offer a novated lease as a fringe benefit to their employees.
The advantage for the employee is that you will still have your car even if you lose your job. Since the car will stay with you after you have left the company you will generally find that employers are less restrictive on which makes and models you can select as part of a novated lease though they will likely give you a band in terms of the cost of payments that they will accept. This means it is less likely you will get stuck with some plain sedan as you would normally with a company car and can have a vehicle with a bit more personality.
There are also tax advantages to a novated lease particularly in terms of GST that can significantly reduce the total cost of ownership. Since most employers are able to claim back the 10% GST payments as part of the lease there is a significant reduction in the total cost. Though things will vary depending on the exact terms of your lease and your personal tax circumstances as a general rule of thumb over the life of the lease you will be at a significant financial advantage over buying a car using a car loan or second mortgage and even be better off after tax that if you had just purchased the car using your savings. It is definitely an option you should consider for financing your car.
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