A New Lease on Driving Life
Wednesday, 9 January 2019
With so many financial systems available to buy a car, it's more important than ever to do your homework.
One option enjoying increasing prevalence is novated leasing.
Novated leasing has many benefits, although the name isn't necessarily one of them.
It's a term that doesn't lend itself to easy understanding.
Simply speaking, a novated lease is an arrangement between you, your employer and a third-party financier.
As you slide behind the wheel of your newly novated vehicle, you know that the lease repayments and calculated operating costs are combined into one amount withdrawn by your employer from your pre-tax salary.
Novated leasing is approved by the Australian Tax Office and tax savings are one of the benefits.
Another, if applicable, is enjoying fleet discounts on fuel and servicing.
Looks and sounds good on the surface, doesn't it?
But that's where your homework should dig deeper.
When buying a vehicle, and especially a second-hand vehicle, we check the lot, don't we? From the mirrors to the manifold, the tyres to the transmission, the paintwork to the panels, the Advanced Driver Assistance Systems to everything else.
Trouble is, for some that's where the diligence stops.
When it comes to the cash, some people are so happy to have their finance approved they omit to study the full terms of the agreement.
In the case of novated leasing, it pays to be scrupulous. Firstly, make sure you understand what kind of novated lease you've taken on, because there's a bunch of them.
For example, there's the novated operating lease, which gives you full access to the vehicle throughout the lease period.
Once the lease is up, you no longer have any monetary commitments – depending on an inspection – but you also no longer have the vehicle.
A novated finance lease factors in the residual value of the car at the end of the lease.
If the subsequent valuation is less than the amount guaranteed at the start, then the difference comes out of your pocket.
While a fully-maintained operating lease includes all operating costs in your salary agreement, a non-maintained operating lease places that onus on you.
These exist outside the lease repayments.
Finally, a budgeted finance lease lets you budget for maintenance costs.
However, not all financiers include this option.
Once you've decided which option you prefer – and more to the point, which one your employer offers – there are a couple more points to consider.
If you change jobs, check out your new employer's novated leasing arrangements.
If there are none, consult your lease provider as to whether you can personally assume the obligations.
Most importantly, check with your novated lease provider about arrangements should you lose your job.
Finally, there is one word you should commit to memory from the outset – residual. We mentioned it earlier and it warrants revisiting.
The residual is the GST-inclusive amount owing at the end of a novated lease.
Calculated by the ATO, it is generally presented as a percentage of your initial finance.
Amounts vary and some can be very large indeed.
So, do your homework and be prepared.
That's the key to enjoying a new lease on motoring life.
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Michael Jacobson is an award-winning Queensland-based writer.
His appreciation for motoring began as a young journalist covering racing from Simmons Plains in Tasmania.
Over the years he has interviewed many Australian and international motoring greats.
He has also been driven around Lakeside Raceway at ferocious speed, circumnavigated the Gold Coast Indy circuit at more than 200kmh and managed to squeeze 365,000 kilometres out of a Toyota Starlet.