Business Transport Buying Vs Leasing a New Car

We all know the process of buying a car, but few understand the process of leasing one. What is the difference and how does it work?Leasing a vehicle is a financing option that allows you to use the car for a specified length of time. At the end of the lease, you give the car back, or buy it via a balloon payment.

Today, we will be discussing the novated lease.Novated LeaseThis commonly used lease type involves a lease agreement between the financier, an employer, and an employee. ...


Business Transport Buying Vs Leasing a New Car
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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?

  • Finance is the element of the loan that includes the interest you pay to the financier.
  • Ongoing expenses cover things like servicing, tyres, fuel, and the like.
  • Pre-tax payments come out of your salary before taxes are taken out, which saves money.
  • Post-tax payments make up a portion of the lease payments taken from post-tax income, which are needed to avoid Fringe Benefits Tax (FBT).
  • Saving is what most novated lease companies calculate for you, which is usually the difference between what your payments under the lease would be if you were paying the pre-tax amount out of your post-tax payment.
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:
  • Earn a high income
  • Travel a lot
  • Buy the least expensive car you can
Further benefits of novated leasing:
  • It doesn’t require capital.
  • Better opportunities to invest your money over buying a car
  • It’s unnecessary to sell the car.
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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