The employer enters the contract, agreeing to make lease payments on behalf of the employee for the length of their employment with the given company. If the employment ends, the employee takes over payments.
What is included in a novated lease?
Now you know where your lease payments go, but how does it compare to buying a car outright?
It takes some research to figure out the net difference in novated leasing and buying a car outright and then selling it at the end of the lease.
What affects the costs and overall savings?
Income – When your income increases, you enter a higher tax bracket, which results in more pre-tax payment savings. This will happen incrementally as you enter higher tax brackets. Yearly kilometres driven – The more you drive, the more kilometres you put on your car, which results in an increase in ongoing costs such as car maintenance, fuel, and tyres. While the increase is the same whether you buy or lease, leasing provides you with tax savings because of the pre-tax element of the lease. The tax aspect isn’t applicable when you buy outright. The more kilometres you put on your car, the less beneficial it is to buy it outright. As kilometres increase, the interest paid when leasing would eventually be fully offset by tax savings.
Cost of the car – The higher the cost of the car, the higher the lease payment. Additionally, insurance costs are higher for a more expensive vehicle. As a result, you pay more interest, which won’t offset the tax savings. In this case, buying outright is the most beneficial option.
The best way to get the most from a novated lease is to:
Further benefits of novated leasing:
The bottom line: Do your research, gain understanding of all the aspects of buying outright and novated leasing, then make an informed decision based on your particular circumstances.
This article has been supplied by The Pay Calculator. This information is not intended as advice and does not take into account your personal circumstances. Always seek professional financial advice.
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