Cars are an integral part of many people’s daily lives, so it makes sense that those who spend a lot of time inside them want to have a vehicle that is reliable, comfortable and efficient.
However, for many people, putting down the money for a new car and buying it outright is an absurd notion. That is why more and more people are choosing to lease their vehicles. If you are in the market for a new car and are looking for a beneficial way to finance the car, then you will want to look into novated leases.
After all, taking out a novated lease means procuring favorable tax benefits, dealing with uncomplicated loan management and fixed repayments, as well as a whole load of other benefits.
Before you start discussing with your employer the process of obtaining a novated lease, it is crucial that you do your research and understand what you are getting yourself into. To help you out with this knowledge quest, here are four things to know about novated leases.
Novated leases are a distinct type of financing option that assists an employee in getting a new vehicle. The employee takes out the contract with a third-party financier, but the employer is the party that makes the lease repayments and operating costs and takes the amount out of the employee’s pre-tax income.
In other words, a novated lease becomes part of an individual’s salary package.
Opting for a novated lease is beneficial for all parties involved. On the one hand, the employee is able to get the car of his or her choosing. Additionally, as the payments for the vehicle are deducted from an employee’s pre-tax income, it means that the employee will benefit from lower tax deductions. As the payments come directly out of the employee’s salary, it makes it easier to manage the loans. Plus, unlike with other car loan options, there are no restrictions on how much usage you can put on the car.
In fact, there are basically no stipulations on what type of car can be acquired through a novated lease — they can be new or used. In some scenarios, it may even be possible for an employee to use the lease on a vehicle they are already paying off.
Regardless of whether you need a high-quality car for your job or you are just in desperate need of an upgrade, by taking out a novated lease, you are putting yourself in a position to drive a greater car for less cash.
On the other hand, for an employer, having a novated lease is a fantastic way to incentivize potential high-quality employees to join your company. The most significant benefits for the firm include the fact that you aren’t responsible for the car if your employee leaves prior to the lease ending.
Plus, novated leases are not regarded as an asset or liability of the business, and you don’t have to manage a company fleet.
Novated leases generally range in duration from one year to 5 years and come covered by the latest warranty models. At the end of the contract, an employee will have the option to upgrade the vehicle to something newer.
In case the employee chooses to leave the company or is terminated during the term of the lease, they have a few options. First of all, the employee can opt to take the novated lease with them to their new employer. Alternatively, they can proceed to make their own repayments directly to the financier, or they can end the contract early and pay it out.
If after researching the best car loans, you and your employer do agree to go down the novated lease route, then keep in mind that it usually takes approximately two weeks to a month for it to be established.
Have you considered getting a novated lease? Does your company offer this as an incentive? Let us know in the comments below!
Rob Chaloner is the Founder and Managing Director of Stratton, and is passionate about smarter ways to buy and finance cars. With Stratton, he’s working to help Australian buyers disrupt the traditional car buying, financing and insurance markets through smarter products and online services.