Novated Leasing vs Buying a Car Outright
If you’re in the market for a vehicle, chances are you’ve heard you could save money through novated leasing. You’ll also be familiar with the more traditional way of purchasing a car – with cash. So if there are dollars to be saved then why isn’t everyone on the novated lease bandwagon? Well, everyone’s needs are different; that’s why it’s important to have choice when it comes to such a big-ticket life item as your next car.
What is a novated lease?
A novated lease is a form of salary packaging and involves a three-way agreement between you, your employer and a finance provider. You don’t pay GST on the cost of the vehicles leased through dealerships and you could also save on tax dollars, as your employer makes the finance payments, and running costs if selected, from your pre-tax salary. An added benefit is that the costs of running and maintaining the car are bundled together into regular payments so you avoid nasty surprise bills.
Is a novated lease right for you?
Novated leasing is a value-packed employee benefit that not every employer offers, so if you’re one of the lucky ones, why not take full advantage?
A novated lease could be a favourable option if you’re travelling a consistent sort of mileage each year, as it allows for easier budgeting for servicing and fuel as part of your regular pre-tax payments. It might also suit those who prefer a newer model, better safety features and the reassurance of a warranty.
Basically, it’s a great way of getting into and running a new or used car, and upgrading regularly.
It’s worth noting, however, that a balloon (or residual) payment is required at the end of the lease, and some see this as a drawback. But the potential tax benefits over the course of the lease could still mean you may come out ahead.
Benefits of buying a car outright
Some people prefer to pay cash – and if you have it saved (and you’re happy to drop a lump sum on a car) then you may consider it? Some people may own a rare or vintage model that does low mileage and which they may own outright for many years.
Other people like to modify their cars, and for these folk, buying outright may be preferred.
So it’s not a one-size-fits-all situation and depends on what you’re after at the end of the day. But for a less stressful way to pay for and run a car, novated leasing could be the right option for you.
This website contains general information and doesn't take your personal circumstances into account. Seek professional independent advice before making a decision.