Novated Lease vs Car Loan - Expert Assistance for All Finance Options

A Novated Car Lease involves a commercial credit arrangement between the employee, employer and lender. The financing of the vehicle – the lease, is transferred or novated from the employee to the employer. The employer takes on the financial commitment and the expenses of buying and maintaining a car for the employee. The employee opts to sacrifice, or give up, the amount required to cover all the expenses from their pre-tax salary.

Salary packaging for motor vehicles is approved by the ATO and parties must meet the guidelines in order to proceed. The type of vehicle, amount involved, and other aspects must meet ATO criteria. The vehicle may be selected by the employee and may be new or second-hand.

The benefits of a Novated Lease to the employee include potential savings in financing a motor vehicle at commercial vehicle interest rates. Rates which are typically lower than Secured Personal Car Loans. Savings in tax may also be realised if the salary sacrifice results in the employee’s salary being taxed in a lower bracket.

The benefits of this arrangement for employers include realising the tax deductions associated with the leasing and the running expenses of the vehicle and potentially using Novated Leasing as an employee incentive or reward. Employees with this type of arrangement may be more incentivised to remain with the company over the term of the lease. Thus, improving the company’s staff retention levels and reducing the costs of recruiting and training.

Leases are arranged over a fixed term, up to 7 years, and a residual may be selected. When all payments are finalised, the vehicle ownership is transferred from the employer to the employee and the salary sacrifice ends. If the employee leaves the company before the end of the term, they must finalise the lease arrangements in order to get ownership of the vehicle.

This can be a more complicated type of commercial vehicle credit and our brokers are extremely experienced in sourcing the best rates and structuring the best leases. Contact us for a quote.

• Leasing arrangement is between employee, employer, and lender.
• Employee sacrifices salary to cover vehicle lease and expenses.
• Employee incentives and rewards.
• Savings on rates and tax.

Considering the advantages and the disadvantages of Novated Leasing compared with a Secured Car Loan, may help employees to decide their best option. For starters, applying for a Secured Car Loan does not involve getting employer permission. Novated Leasing does require obtaining agreement from the employer, which for some, may be challenging.

Issues around bad credit should be considered. Where an employee has credit issues, acquiring a car with a Novated Lease represents a pathway to car ownership which they may not have been approved for on an individual basis. The credit profile of the employer is assessed with Novated Lease, not that of the employee.

However, if the employer has poor credit, the Novated Lease may be approved at a higher interest rate and potentially with additional conditions. A personal loan may be a better option in this scenario.

Compared with a personal car loan, with Novated Leasing, the employee does not have the opportunity to build their credit profile or use the vehicle as asset/liability on their personal balance sheet when applying for other loans.

There are potentially tax savings for individuals with salary packaging, but all costs associated with running and maintaining the vehicle must be included. That is registration which would be at business vehicle rates not private rates as the vehicle is leased by a business entity.

Issues around ownership should be considered over the long term. A lease may be over 7 years. An employee would need to stay in that job for that time to ensure smooth transfer of vehicle ownership. If they leave the job before then, they may need to take on new personal finance to payout the lease.

Our brokers are experts in commercial and personal vehicle credit and can assist buyers with their decisions. We can source options for your consideration to ensure you are in a position to make a fully informed decision. Ask us for quotes on both options today.

• Expert guidance and assistance.
• Consider upsides and potential downsides.
• Request quotes on all car finance options.