A novated lease is one of the most cost-effective and easiest ways to lease a new car, and it isn't necessary to be earning a high, executive salary. It is a three-way agreement between a financier, employee and employer. Here is an overview of this type of lease package:
How does it work?
The novated lease agreement is likely to run for a period of two, three or five years. Once the term of the lease has expired, it is possible to upgrade the lease for a newer model or if preferred pay a buyout fee to take full ownership of the vehicle.
This type of lease package has a variety of benefits and is different to a typical car loan. The novated lease is paid using your pre-tax salary, which means your money has the potential to go further and is helpful for lowering a person's taxable income. On the other hand, the regular loan makes use of your post-tax salary.
The actual process for the employee is relatively straightforward. Most companies have set up a system to let employees enter in a preferred lease term, type of car, and present salary to give a clear indication of the options available to them.
What are the benefits?
Tax effective – a major benefit of the novated lease is that it is so effective and you get to pay for the car and running costs using pre-tax income.
Increased buying power – the ability to lease through a fleet company is certain to give greater choice in the type of car you can drive. The discount opportunities of using a fleet provider are that much more competitive compared to what you may get if you walked into a dealership on your own.
Easily upgrade your car – a further great positive is the ability to change the vehicle once the lease expires. This type of flexibility is great for those drivers that always want to be driving the latest models.
Servicing requirements – this type of arrangement is also useful for managing all your servicing requirements. The cost of maintaining the vehicle is often included as part of the lease package.
Are there any risks
In addition to many different benefits, there are also a few potential pitfalls that are worth considering. For instance, it is essential to have job security to make sure this type of lease is kept in place. Also, in recent years, the tax benefits of a novated lease have slowly started to wind back.