Novated Leasing vs. Buying a Car

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Understanding Novated Leasing

Novated leasing involves a three-way agreement between an employer, an employee, and a finance company. The employee leases a vehicle of their choice, with lease payments and running costs deducted from their pre-tax income. This results in potential tax savings and a predictable budget for vehicle-related expenses.

With a novated lease, you can get a new, used, or existing car. Plus, you can bundle your car expenses for further savings and convenience. Expenses you can claim include:

Car Registration
Insurance Premiums
Fuel Costs
Servicing & Maintenance
Tyres
Regular Car Washing

Understanding Novated Leasing

Novated leasing involves a three-way agreement between an employer, an employee, and a finance company. The employee leases a vehicle of their choice, with lease payments and running costs deducted from their pre-tax income. This results in potential tax savings and a predictable budget for vehicle-related expenses.

With a novated lease, you can get a new, used, or existing car. Plus, you can bundle your car expenses for further savings and convenience. Expenses you can claim include:

Financial Benefits of Novated Leasing:

Novated leasing can offer several financial advantages. These include tax savings, no upfront costs, and the ability to include all vehicle-related expenses in a single, easy-to-manage payment. For those seeking a more structured and potentially cost-effective approach to vehicle ownership, novated leasing presents an enticing option.

The main way you save is from tax savings. By having your lease payments and running costs deducted from your pre-tax income (or gross salary), you potentially reduce your taxable income. It’s a legal and savvy way to keep more money in your pocket. This is referred to as salary packaging. 

Calculating Your Savings: 

The Clear Lease Novated Lease Calculator is a tool designed to provide a detailed breakdown of the costs associated with a novated lease. It takes into account factors such as the vehicle’s value, lease term, running costs, and applicable tax benefits to deliver a precise estimate of your financial commitment.

For those considering multiple vehicles or exploring different lease terms, you can request a quote from our team, which will list vehicle options so you can compare savings and costs. 

Let’s find out how much you can save​

$
$
KM
years
$200.00 Weekly Cost To You
$2,000.00 Annual Savings
$7,000.00 + Total lease savings

Understanding Buying Outright

Buying a vehicle outright provides a straightforward sense of ownership. Once the purchase is complete, the car is entirely yours, and there are no ongoing lease payments or obligations. The car you choose to purchase can be new or used, and it can be any make or model. 

Financial Considerations:

While outright purchase avoids lease-related commitments, it requires a significant upfront investment. Buyers must be prepared for the immediate financial impact of the purchase, which can influence their overall budget and financial flexibility. 

This, of course, includes stamp duty, GST, and a vehicle background check if you’re opting for this to make sure the car is roadworthy, hasn’t been stolen or been in any serious accidents. 

Comparing the Two: Making an Informed Choice

      1. Cost Considerations

    Novated leasing often offers lower upfront costs and predictable monthly payments, making it an attractive option for budget-conscious buyers. 

    Buying outright, on the other hand, demands a substantial initial investment but may result in long-term cost savings without ongoing payments.

        1. Flexibility in Vehicle Choice

      Novated leasing provides flexibility in choosing vehicles without the constraints of a large upfront payment. However, you will need to make sure your employer’s policies on novated leasing doesn’t limit this choice. For example, if they only support novated leasing arrangements for employees buying an electric or hybrid car

      Buying outright may limit options based on the immediate budget but allows for total ownership freedom.

          1. Ownership vs. Usage

        Novated leasing prioritises usage over ownership, providing a cost-effective way to drive a new car without the long-term commitment. 

        Buying outright emphasises ownership but requires an up-front investment for the entire price of purchasing the car. It also means that you’re unable to benefit from tax savings as this initial payment will be post-tax income. 

        Deciding What’s Right for You

        In the realm of “Novated Leasing vs. Buying,” there is no one-size-fits-all solution. The right choice depends on individual preferences, financial considerations, and lifestyle priorities. 

        Whether you opt for the tax-efficient path of novated leasing or the outright ownership route, understanding the implications of each choice ensures a smoother journey to get you behind the wheel. 

        Want to talk to an expert? Get in touch with the Clear Lease team. 

        FAQs

        Is it better to novate lease a car or buy it outright?

        Deciding whether to get a novated lease or buy a car outright will, of course, depend on your individual circumstances. As a brief overview, here are some pros and cons for each option. 

        Novated Lease

        Pros

            • Your finance payments are deducted from your pre-tax income, reducing your taxable income to help you save money

            • Bundles your car’s running costs with your repayments

            • Offers flexibility to upgrade at the end of the lease term

          Cons

              • You need to pay a residual value at the end of the lease to own the car

              • You remain responsible for lease and running cost payments, even if your employment changes

            Buying Outright

            Pros

                • Flexibility to keep, sell, or trade your car at any time as you own in

                • There are no ongoing lease payments

                • There are no restrictions on mileage

              Cons

                  • Requires a large upfront payment

                  • Depreciation impacts resale value of the car

                Are novated car leases worth it?

                As mentioned above, deciding whether a novated car lease is worth it to you depends on your circumstances, but there are a few common factors you can consider: 

                Tax Savings: By using your pre-tax income to make lease payments, you can reduce your taxable income, therefore saving. 

                Budgeted Running Cost: Your novated lease can include running costs as a bundled payment. This makes it easier to manage your car expenses. 

                Employment Stability: If your employment situation changes, like you leave your job or are made redundant, you are still responsible for making your lease payments. Of course there are options Clear Lease can help you with if this situation arises, but it’s still important to consider. 

                Does a novated lease reduce your taxable income?

                Yes, a novated lease can reduce your taxable income. 

                With a novated lease, your lease payments and running costs are deducted from your pre-tax income, which lowers your taxable income. 

                It’s important to note that the extent of the tax savings depends on various factors, including your income, the cost of the car, and the conditions of the lease agreement itself. 

                To get an understanding of how much you can save, use our free novated lease calculator. 

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