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The Benefits & Terms Behind Novated Leasing, Explained!

Novated LeasingAsk someone about what's the cheapest way to own a car, they'll probably tell you to try novated leasing. It may sound too technical and complicated, but this term is worth wrapping your head around because of its advantages.

Defining the Term "Novated Lease"

Lease Masters defines novated lease as a three-way agreement between you, the leasing company, and your employer. The term itself literally means to transfer the rights and responsibilities of leasing from your employer down to you. The agreement will stand as long as you're with the company.

In novating, the repayments are deducted out of your pre-tax income which is also known as "salary packaging or sacrificing". Under this term, the value of the taxable amount in your salary will be reduced due to the repayments you'll be making. Meaning, you pay less tax.

What are Its Advantages?

Availing novated lease, be it used cars or not, can be beneficial to you for a number of reasons. Some of these include:

  • higher take-home pay
  • reduced tax payments (for income tax and goods and services tax)
  • offers more discounts (on the total value of car, fuel, and operation costs)
  • it has fixed monthly payments
  • ability to pick the car of your choice
  • offers flexible term of ownership
  • covers all expenses for maintenance & repair service

How Does It Work?

On a typical agreement, you can stretch two to five years of use. Once you finish the agreed term of ownership, you may now have the choice to either trade it for a newer model or buy it based on a pre-determined fee, called "balloon payment", if you want to keep the car.

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Compared to a car loan, novated lease is better in so many ways. Remember that in an auto loan, you're paying the original price of the vehicle while shouldering the income tax on your salary. Meaning, the payout you receive has been deducted right before you even spend it. Thus, your money will go farther when you’re under a novated agreement.

Novated leasing might be quite confusing and intimidating at first, but if you consider looking into it deeper, you’ll be surprised at the many benefits it’ll give you. So, before you decide whether you’re financing a car on your own, might as well try to understand novated agreement for possible options.

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