Deciding whether to take out a novated lease or a car loan can be a tough decision.
You might have had a novated leasing company come into your work and give a spiel about how you can save money by paying some of your finance pre-tax and some post tax. Unfortunately, this product is usually oversold, and many people are not aware of the finer details and the true costs that really matter.
We usually find that a car loan is a better solution for most people, but it is situation dependent.
A novated lease is where you have a three-way agreement between yourself, your employer, and a lender.
With a car loan, you have the agreement with the lender and are responsible for meeting payments yourself.
At Auto Car Loans we offer novated leases, but we usually don’t recommend them! Here’s why:
Novated Leasing companies will often talk up the tax savings of a lease. These companies hide huge finance commissions behind the complexity of a lease (i.e. bundling of running costs, purchase costs, finance and insurance costs, all calculated against your income tax bracket), so it can be hard for you to realise what the true cost of the lease actually is.
Behind every novated lease lies a car loan and an interest rate, and usually a whole lot of insurances that you may or may not need. The interest rates on novated lease finance are often MUCH, MUCH higher than a standard car loan, earning the leasing companies huge commissions while the buyer thinks they’re getting big savings.
If you end up leaving your place of employment, then your novated lease will become a regular loan agreement between you and the lender. There will be a break cost, a higher interest rate, and the tax benefits are no longer applicable. If you have a regular car loan, things continue on as normal, as long as you continue to meet your payments.
It’s not so common that someone will have an overall cost saving by doing a novated lease. While it is presented that you may save XX amount of tax, unless you are going to drop two tax brackets then it’s often not going to compensate for the huge interest rates and insurance costs which are usually hidden in the lease.
Many novated lease customers who use their car for business purposes don’t realise they are eligible for a chattel mortgage and associated tax deductions. At Auto Car Loans, we offer personal car loans, novated leases and chattel mortgages. If you’d like to discuss your options with our team at Auto Car Loans, contact us here or call us on 1300 301 051. We’ll be more than happy to explain in further detail the differences between car loans and novated leases to help you make the right decision to suit your needs.
Sources:
https://autocarloans.com.au/resources/the-first-time-buyers-guide-to-car-loans/
https://autocarloans.com.au/resources/buying-a-car-for-business-use/