The car financing secret that can save you thousands
If you’re considering a new vehicle, stop! Make sure you read this before you start looking at a car loan or a personal loan (or even paying cash!); there’s another option that you may not know about.
Here’s a little car financing secret that can save you thousands of dollars instantly and provide benefits that few other forms of finance can: a novated lease.
What is a novated lease?
A novated lease is a type of car finance available through your employment. Novated leasing may commonly be referred to as ‘salary packaging’ as an employer needs to agree to the arrangement as part of your employment contract and salary benefits.
A novated lease can be used to finance most vehicles, provided they are:
- Less than 12 years old
- Less than $200k in value
- A passenger vehicle with a payload below 1,000 kg
Unlike business car finance – where you have to use the vehicle mostly for business – you can use the vehicle as a personal car as much as you’d like.
How does it work?
Firstly, you’ll need to be employed on wages or a salary, and your employer will need to agree to a novated lease. There are countless benefits for employers as well, so there’s little downside for either party involved.
Once you’ve agreed to a novated lease, you or your employer will liaise with a leasing company to create the contract and provide the vehicle of your choice.
Everything is handled by the leasing company, which means you’re free to enjoy your vehicle as you wish. Payments toward the lease are deducted from your pre-tax salary, which commonly includes estimated running costs proposed by the leasing company. Note that you can usually have the final decision on the budgeted amounts for running costs.
Once you’ve established your novated lease, you’ll barely even notice that you’re paying for the vehicle – as you’ll see from the extraordinary benefits listed below.
What are the advantages?
At the start of your lease, you’ll benefit from being able to purchase the car at ex-GST pricing. This is one of the few ways you can finance a vehicle without paying GST, which can save you thousands of dollars on the up-front cost of a vehicle.
Better still, the price of the vehicle is likely to be lower than when purchasing at a dealership, as leasing companies can access certain discounts on fleet vehicles that can then be passed down to you.
If this wasn’t already enough, a novated lease also provides similar benefits over the term of the lease.
As your payments are made from your pre-tax income, the amount of ‘taxable’ income you’ll need to declare at the end of the tax year is reduced, potentially saving you thousands in tax.
To maximise these savings, it’s most popular to opt for a fully-maintained novated lease, which includes your running costs in your regular payments. These are estimated by the leasing company when you establish your agreement and cover the cost of servicing, registration, insurance, and the bills at the petrol pump! You can even choose to cover things like car wash.