What You Need To Know About A Novated Lease
Traditional car purchases involve two parties, the buyer and the seller. However, if you introduce your work employer into this relationship, you have got yourself a way to save a fortune. This is what is known as a novated lease. It can seem kind of scary at first, but it is genuinely something worth looking into.
What Is A Novated Lease?
Most regular car loans are paid using your salary after taxes have been paid. When you pay for a novated car lease, your payments come out before taxes do. Exactly what creates this type of lease? It means that, legally, you’re introducing a third party into your purchase agreement for your new car. This third party is your employer. Essentially, this is a way for you to pay for your new vehicle by having your employer make the payments for you out of your paycheck using pre-tax earnings.
How Does It Work?
Most novated leases are for between two to five years. After this time period, you have the ability to keep the car or trade it in for a newer model with a new lease. This type of lease allows a business or an employer to lease a new vehicle on behalf of their employee. The payments are the responsibilities of the employee, not the business. The main difference between a normal finance and a Stratton Novated Lease is that all of the vehicle payments will include running expenses.
Benefits Of A Novated Lease
There are many benefits to taking out this type of lease instead of a regular finance loan on a new car. The main benefit is that it is very tax-effective because you are paying for the running costs of the new car using your pre-tax dollars. Another benefit is that you will have increased buying power from using a fleet company. When you get a novated lease using a fleet provider, you will get a much larger discount by utilising the buying power in order to get the vehicle instead of just walking into a new car dealership. Additionally, the ability and flexibility to exchange your car when your lease expires is another benefit. Dependent on how the lease was structured, you will either be able to pay out the residual left on the car or exchange it for a newer model after your lease is up.
Risks Of A Novated Lease
Along with the benefits will always come some risks. One potential pitfall that people should be aware of is that the government has been slowly winding down the tax benefits of using a novated lease option. Additionally, you will need to not only have an employer with a pre-tax salary, you’ll need to have that salary continue in order to continue paying for the car. Job security is very important for keeping up with your lease. The biggest downside and risk of these types of leases is the fringe benefit tax. If you lose your job, it could be very hard to continue making your payments.