Novated Leasing Explained
Novated Leasing is a business credit facility where an employer agrees with an employee to take on a lease for a motor vehicle with the employee sacrificing a portion of their salary to cover the expenses.
Novated Lease vs Car Loan - Expert Assistance for All Finance Options
Individuals requiring finance to purchase a motor vehicle have a number of car finance options to consider. The two major choices are a Secured Car Loan and salary packaging a car with a novated car lease. Choosing between lease vs loan for a car involves a number of factors. As specialists in motor vehicle lending, we assist individuals to secure the vehicle financing which is right for them by explaining the options, securing competitive rates and handling the entire process.
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Understand the Complexities of Novated Leasing for Optimal Outcomes
Novated Leasing with salary sacrificing can present many benefits over a standard vehicle loan for some individuals. But leasing is a more complex commercial credit facility, involving employee, employer and lender. We work with all parties to source and structure the lease that will deliver the optimum outcome.
If considering which car finance options are best for you and your vehicle, have a no obligation initial discussion with one of our brokers. We will explain the details and can provide quotes on all available options.
Overview of Benefits of Novated Lease and Car Loans
The automotive lending market provides vehicle buyers with a range of credit facilities for financing their purchases. Private buyers can select from Secured and Unsecured Car Loans. In addition, individuals that are employed by a business may also consider salary packaging a car with a Novated Lease.
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Tax Deduction Benefits
This facility can provide tax deductions for the employer and may reduce income tax payable by the employee by moving them into a lower tax bracket.
Commercial Rate Advantage
This arrangement can also allow employees to acquire vehicles at commercial rather than personal vehicle financing rates.
Affordable Vehicle Ownership
Having the employer take on the vehicle financing may also enable an employee with poor credit access to vehicle ownership with affordable funding.
Secured Car Loan Benefits
While there can be benefits in salary sacrificing, a secured car loan does offer individuals the flexibility of changing jobs without dealing with the complexities of finalising the salary sacrificing arrangement.
Future Loan Benefits
A personal car loan also provides individuals with the opportunity to build their own good credit profile which can be beneficial with future loan applications.
Simple Loan Process
From a practical perspective, the more simple, straightforward process of securing a personal car loan may be more attractive to many buyers than the complexities of Novated Leasing.
Explore Novated Lease and Salary Sacrificing Benefits with Expert Guidance
To assist with deciding your most suitable option, contact us for a discussion.
- Novated Lease with Salary Sacrificing for employees.
- Lower Rates, Tax Benefits with Novated Leases.
- Simple, Straightforward Secured Car Loans.
- Expert assistance with both commercial and personal vehicle finance options.
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Our guides offer quick comparisons and simple explainers to help you cruise through the financing process with confidence.
Novated Lease
Novated Lease Information
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How Novated Leases Work – Tax Benefits, Potential Savings
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.
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Understanding Personal Car Loans
Understanding what is involved in traditional personal car loans may assist employees to decide the right finance option for them. Individuals can apply for a secured or unsecured car loan to purchase a vehicle for private use. With our access to more than 80 lenders, we find the right lender and the best rates to suit each customer.
Our rates are extremely competitive, flexible terms and repayment arrangement are available, no deposit financing is available, and employees don’t need their employer’s approval to take on personal car finance.
A secured loan will suit most buyers of new and quality second-hand vehicles. This type of credit uses the vehicle as collateral for the loan. The credit profile of the applicant will be integral to achieving the best rates and both applicant and lender, must adhere to the Consumer Credit regulations as overseen by ASIC. Where a vehicle is not suitable collateral or where the applicant opts not to offer the vehicle as collateral, unsecured credit products are available.
Personal car loans can offer individuals a straightforward way to acquire vehicles with financing. With fixed rates, fixed terms and fixed repayments, the buyer has certainty and knows that they will own the vehicle at the end of the term. By meeting scheduled repayments, the individual can build their credit profile.
For a quote on a personal secured car loan, contact Jade for the best rates from the right lender.
- Personal Car Loans – fixed rates, fixed terms, fixed repayments.
- Competitive rates, 80+ lenders.
- Flexible, straightforward car finance options.
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Choosing Between a Novated Lease and a Car Loan – Comparative Analysis
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.
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THE COMPARISON RATE IS CALCULATED ON A SECURED LOAN OF $30,000 FIXED FOR A TERM OF 5 YEARS, NEW GOODS, EFFECTIVE 19/09/2024 AND SUBJECT TO CHANGE. WARNING: THE COMPARISON RATE IS TRUE ONLY FOR THE EXAMPLES GIVEN AND MAY NOT INCLUDE ALL FEES AND CHARGES. DIFFERENT TERMS, FEES OR OTHER LOAN AMOUNTS MAY RESULT IN A DIFFERENT COMPARISON RATE.
We work harder to secure the best rates.
Novated Lease vs Car Loan FAQs
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When salary packaging a car, the vehicle and the arrangements must meet ATO guidelines. Both employer and employee must agree to the type of vehicle.
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No. The employer must agree to take on a Novated Lease for an employee. The lease is in the employer business’ name.
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Leasing typically attracts a lower interest rate than personal car finance.
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When approving a Novated Lease application, the credit profile of the employer not the employee is assessed.
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Employees should consider the long term implications of leasing including staying with that employer over the full term or having to payout the lease to obtain ownership if leaving the company.
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Employees may save with lower rates on lease vs personal car loans. They may save on income tax if the salary packaging moves their taxable income to a lower tax bracket.
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Private car buyers can select from a secured car loan, unsecured personal loan or a Novated Lease with Salary Sacrificing.
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Salary packaging involves deducting the amount to cover the lease and expenses of a motor vehicle from pre-tax salary. This may move the employee into a lower tax bracket.
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With salary packaging, the full costs of the lease, rego, insurance and maintenance need to be sacrificed. These costs with business rego and insurance would need to be compared with personal rego, insurance and personal v commercial interest rates.
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If an employee leaves the employer prior to the end of a Novated Lease term, they would need to come to an arrangement with the employer to pay out the lease to get ownership of the car. This may be achieved by taking on a personal car loan.