Explore the advantages and disadvantages of a novated lease and determine if it’s truly worth it for your financial situation.
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What is novated leasing and is it worth it?
Novated leasing is an increasingly popular way for employees to package their car expenses with their salary. You get a new car and many other benefits. It allows employees to pay for their car and associated running costs from their pre-tax salary, reducing the amount of income tax they pay.
Running costs include but not limited to are comprehensive insurance and registration costs. It also provides employers with a cost-effective way to provide the following benefits to their employees without increasing payroll costs.
Novated lease advantages:
Here we explore the benefits of a novated car lease and the advantages it offers both employees and employers.
- The convenience of not having to deal with a bank or other financial institution. An online platform lets you access all your statements without any hassle. When it comes to queries or doubts related to your lease payments or lease term and any other aspect of a novated lease, you are only a few clicks away from getting the information quickly and easily.
- Novated leasing providers cut down the prices of new cars significantly because of their buying power giving customers an added incentive to use their services. These discounts can often be more than $6,000 making it a savvy way for people to save on their purchase costs.
- You don’t have to drive a minimum amount of kilometres. There used to be a misconception that to qualify for leasing you had to meet an annual kilometre requirement. However, this changed after the adjustments made to the Fringe Benefits Tax regulations in 2011. Nowadays you don’t have to go beyond to enjoy the savings. The assessment of Fringe Benefits Tax (FBT) is now done differently. It no longer depends on the number of kilometres driven during the FBT year. Regardless of whether you drive 10,000 km or 50,000 km, the FBT liability rate remains constant. Low kilometres on a novated lease can be beneficial when you return your car at the end of the lease period.
- The Commonwealth Bank (CBA) and Tesla have joined forces to provide financing options to individuals and businesses interested, in purchasing Tesla vehicles (EVs). If you’re a customer you can apply for a personal loan from CBA for eligible eco-friendly purchases, including electric and hybrid vehicles that meet specific criteria. As part of this partnership retail customers can use their vehicle as collateral. Business customers can also benefit from discounted rates by accessing CBA vehicle finance through the Tesla website. This collaboration aligns with CBA’s commitment to supporting the shift towards living by making affordable financing options available, for friendly products and services.
- No deposit is needed. Solving your transport problem or buying a new electric vehicle (EV) can come sooner. Novated car leases are a great option as they don’t require you to put down any sort of deposit. This helps with the current low wage growth as we have seen across many industries. So if you are not going to see any wage rises in the near future this is a fast-track way to get into a new car of your choice.
- Paying for your car using pre-tax salary dollars is an excellent way to save on taxes and have more cash in hand. Plus, no GST will be charged on the initial purchase price or running costs. You can also add car running and ownership expenses where pre and post-tax salary car expenses are rolled into a salary sacrifice package.
How to calculate the cost of a novated lease?
A good novated leasing calculator to use is over at Vehicle Solutions. Affordability is usually the first thing you think about when buying a car. You want to know the cost of your take-home pay. Vehicle types include:
Also, cost includes finance, fuel, servicing, tyres, insurance & registration renewals each year.
How to calculate your potential savings with novated leasing?
Auto Expert John Cadogan explains how the Treasury Laws Amendment Electric Car Discount Bill 2022 can break the barrier to EV ownership.
A car like a rear-wheel drive Tesla Model 3 is going to be about the same price as a Corolla SX Hybrid in the context of your take-home pay.
Novated lease disadvantages:
When your employment contract terminates, or if you change jobs, you take ownership of the vehicle. This would mean that you’d then deal directly with the novated lease provider. Additionally, it’s possible to continue with your existing lease even when you switch roles.
Disadvantages of car salary packaging:
- You will still need a credit check
- Not easy getting out of a novated lease early
- If you leave your employer or your employment is terminated the vehicle ownership (responsibility) is transferred to you
- Risk negative equity between the current lease amount and the current vehicle market value
- Residual Values – When you decide to lease a car, opting for a shorter term results in having a higher residual value at the end of the lease term. For example, choosing a 1-year lease could result in up to 65% of the car’s value as a residual. When your term is over if you want to own the car entirely you’ll need to pay the residual amount that was determined earlier.
Can you get a novated lease with bad credit?
Getting a novated lease with bad credit can be challenging, as a lease is typically subject to a credit assessment by the leasing company or finance provider. Bad credit history, which may include defaults, late payments, or a low credit score, can make it more difficult to obtain a novated lease. Lenders are cautious about extending credit to individuals with poor credit as they consider it a higher risk.
However, it’s important to note that each leasing company or finance provider may have their own criteria and policies regarding credit assessments. Some providers may be more lenient or specialize in working with individuals who have less-than-perfect credit histories.
If you have bad credit and are interested in obtaining a novated lease, it’s recommended to reach out to different leasing companies or finance providers to inquire about their specific requirements and whether they offer options for individuals with bad credit. Working with a specialist or seeking professional advice from a finance broker who has experience with bad credit situations may also increase your chances of securing a novated lease.
If you’re buying a car with bad credit or a low credit score, here are three tips for getting approved for a car loan and rebuilding your credit history.
Getting car financing with a poor credit score can be quite a challenge. Do you feel helpless and frustrated due to not meeting the requirements, then this article will help. Lenders tend to conduct detailed investigations into their prospective customers, sometimes uncovering minor mistakes from the past. Following these three steps and tips to help get approved while also working to restore your poor credit history.
Tips on how to get a car loan with bad credit
Tip 1: Get off the roundabout when applying for a car loan with bad credit
If you keep getting denied a car loan, it can be tough to find yourself in an endless loop of applying and getting rejected with each application. It’s important to know that trying to get multiple forms of credit could pose a risk to your credit score. Lenders usually conduct a hard inquiry on your credit report when you apply for credit, potentially causing a minor decline in your score.
Also, if you apply for multiple personal loans for bad credit or credit cards within a short period, each application could result in a separate hard inquiry impacting your credit score further – many loan applications within a short timeframe are a sign of financial distress or increased risk. Staying mindful of these factors can help you maintain a healthy and stable financial reputation. Here are some tips to avoid many credit checks to help you get off this roundabout.
While it’s essential to be mindful of how many credit checks you undergo, multiple inquiries typically have a limited and temporary impact. Most credit scoring models recognize that people might search for the best loan or credit card terms and factor in these shopping behaviours. So, rest assured that exploring your options won’t significantly affect your credit score in the long run.
Identifying the right lender when you have bad credit and are applying for a car loan can be challenging. It is a good idea to research and compare different offers with terms and conditions before applying. You should also use a car loan calculator to figure out the repayment plan that suits you. Instead of searching for lenders that specialise in small loans for people with bad credit, focus more on repairing and ways to improve your credit score.
If you have a poor credit score, you may make hasty decisions when looking for car loan options. It is important to be mindful of who you choose to deal with, as the wrong decision could lead to more financial difficulty in the long run. The loan amount and fees must be reasonable relative to the type of car you purchase.
Take your time and ensure that you are buying a car from a private seller that is in good mechanical condition too. Also, factor in car depreciation. Taking into consideration manufacturer, make, model, age, kilometres and condition. You don’t want to invest too much of your money in a depreciating asset.
Tip 2: What to do before applying for bad credit car loans?
Knowing your credit score and credit report overview to understand your financial situation will help you. Gather the necessary documents you need for the application process as well.
Companies analyzing your bank statements is a common practice; they look for evidence that you can manage money. If your accounts show a history of overdrafts and insufficient funds, this may mean you are not living within your means.
When applying for a loan or credit, it is essential to bring documents demonstrating your previous loan/credit history. Additionally, the information in your credit report must be accurate and up-to-date. Lenders want to see that you can make future repayments with a regular income if they give you the loan. Once you have the necessary documents, it is time to visit a broker.
Tip 3: The smart way to get a car loan & repair your bad credit history
Purchasing a car with bad credit can be overwhelming, so it’s essential to team up with someone knowledgeable in finances. Also, to help you get the right loan and rebuild your credit rating.
Brokers can act as protective shields, protecting you from shark-like lenders in the financial markets that deal in bad credit loans. Don’t be afraid to explore your loan options and let a broker serve as an intermediary between you and the companies, so you can avoid paying a much higher interest rate and get the best deal possible.
Car brokers can help you craft a compelling and truthful case, enabling you to get approved and drive and away in no time.
Conclusion – Are novated leases really worth it?
So is novated leasing worth it? I would say definitely. As long as you look at the potential depreciation rate of the car after the lease term. There are vehicles that hold their value better than others like Toyota, Mazda and other Japanese brands but you pay more for these makes and models.
So, if the value of the car is worth more than the residual value at the end of the lease you will be able to exit the lease and into another one without having negative equity. Also if you get a fully maintained novated lease you get the added benefits of ongoing costs like servicing, regular maintenance, insurance and a fuel card paid for using pre-tax dollars from your salary. This gives you a complete salary sacrifice scheme solving your work-related transport needs all rolled into one payment coming from your pre-tax income.
Frequently Asked Questions (FAQ)
Can I buy a used car on a novated lease?
Yes, you can, as long as it is less than 10 years old at the end of the lease. So if the vehicle is 5 years old when you enter into the lease arrangement you can lease for another 5 years. This is a great way to minimise the risk of potential negative equity when your lease expires.
You can get a car privately or from a dealer. In fact, you can have any vehicle for your novated lease even considering car auctions like Pickles Auctions. They offer a service where people can sell their novated lease vehicles on consignment, so you can choose from many different makes and models.
Is it better to pay cash for a car or a novated lease?
When it comes to purchasing a car, there are two main options – paying cash or taking out a novated lease. Both have their own advantages and disadvantages, so it’s important to consider them carefully before making a decision.
Paying cash for a car is often seen as the most straightforward option, as you don’t need to worry about loan repayments or interest. However, it may not be the most financially viable option in the long run if you don’t have enough money saved up for the purchase.
On the other hand, taking out a novated lease can provide more flexibility and help you spread out your payments over an extended period of time. This can be beneficial if you’re looking to save money on taxes or reduce your monthly expenses. However, it’s important to remember that there are some associated costs with this type of financing that should be taken into account when considering this option.
What is the lowest credit score needed to buy a car?
Generally, a credit score of 600 or higher is necessary to be eligible for a traditional auto loan; however, the minimum credit requirements may vary depending on the lender. If your credit rating is subprime, you will likely have to seek out an automobile loan specifically eligible for people with bad credit.
Can you get car finance with bad credit?
Even if you have a bad credit score, there is still a chance that the lender may agree to give you a secured car loan. This type of financing is usually secured by the vehicle itself. If you are unable to keep up with your payments, the lender can repossess the car and sell it to cover the costs of the loan.
Can you get a car loan with bad credit in Australia?
Australian banks usually don’t have a universal requirement for credit scores when it comes to car loans. Most major banks typically require at least a score of 600, but there are other lenders with more lenient scoring criteria, and some do not set a minimum limit.
I’m not a trained professional in the legal, accounting, or financial fields, and thus cannot provide advice. The information in this blog post is intended to be a reference source only and should not be taken as a replacement for advice from a qualified expert who is familiar with your circumstances.