Questions About Novated Leases

Q: Can you get a novated lease for a second hand car?

A: Yes, you can get a novated lease on a second-hand car. Usually, lease agreements are used to purchase and finance new cars, but there is no reason why you can’t get a second-hand car under a novated lease agreement. OK, it’s probably not the best idea to get an old banger under a novated lease agreement  you probably don’t even need a loan for an old banger. in some cases, you can get the car you’ve already bought and are in the process of paying off switched to a novated lease through a sale and lease back agreement, where you get the equity you hold in the car back in the form of cold, hard cash and the car itself becomes part of a salary package.

Q: Can you get any sort of car under a novated lease agreement? Are there any limits?

A: This really depends on your boss and the company finance whizzes, as different workplaces have different rules.Ultimately, there isn’t really any limit on the type of car you can get, but realistically, you are probably best not to get some super flash sports number like a Lamborghini brand new. The repayments on that are going to be a bit on the high side for the average Aussie office worker, even as part of a salary packaging deal. However, in most cases, it does have to be a car rather than a truck or a motorbike. You will need a personal loan if you want to own and drive one of these (or, in some cases, the business might get out a business loan for a company-owned truck or motorbike, depending on the business in question).

Q: My boss has offered me a package that includes a car with a novated lease agreement. Does this mean that the car in question can only be used for business purposes?

A: No. You can use the car for whatever you like  going on holiday, taking the kids to school, going shopping, visiting grandma on the other side of town, you name it. That’s one of the good things about novated leases. In fact, novated leases work better if the car under the lease agreement is mostly used for personal purposes. You may or may not have to keep a logbook of kilometres driven if you use the car for a mix of business and personal, depending on which Fringe Benefit Tax method your workplace uses, so ask them about this.

Q: Aren’t novated leases only suitable for people at the top of the corporate ladder with great big salaries who want to drive the latest luxury models of car?

A: No. Novated leases can work for everyone and for every sort of car. Anyone can benefit from a novated lease agreement as part of their salary package, though the amount saved in tax will depend on the value of the car, the number of kilometres you drive and your gross salary.

Q: Will a novated lease be suitable for everyone?

A: Novated leases work for most people. However, for people who have to drive a lot for business purposes (and driving to and from work is not considered business purposes) might be better off with a vehicle owned entirely by the company rather than a vehicle financed under a novated lease agreement.

Fringe Benefit Taxes And Your Novated Lease

If you don’t have an accounting background, understanding all the ins and outs of fringe benefit taxes and how they apply in the case of a novated lease on your car could drive you towards another sort of fringe  the lunatic fringe.

A novated lease is considered a fringe benefit and is subject to fringe benefit taxes, same as any other sort of non-cash perk that comes as part of the job. Under a novated lease system, the company you work for is leased, technically speaking, by the company, although the costs are passed on to you and are taken out of your salary package before the pay cheque hits your bank account. And the use of a car leased primarily by the company for private purposes is considered a fringe benefit. (In case you’re wondering, being allowed to take home the scrap paper from the photocopier so your kids can draw on the back, or getting to take home the sandwiches that weren’t eaten at the staff lunch aren’t fringe benefits, even though you might consider them a bit of a perk.)

The good thing is that your company’s accountant will take care of all the fiddly side of calculating fringe benefit tax and will take it out of your salary, much the same way that he/she handles the normal tax bits. So you don’t really have to worry.

You may or may not have to keep a log book, depending on whether your company prefers to use the Operating Cost Method or the Statutory Formula Method. The Statutory Formula Method doesn’t take any notice of whether you use the car for private or business use, but just uses a percentage multiplied by the cost of the car to work out what your fringe benefit is worth. It’s usually about 20%, although the method of calculating this has been changing over the last few years. At the time of writing, it’s 20% unless you travel more than 40,000 km in a tax year, in which case it’s 17%. From 1 April 2014, it’s all going to be 20%. A lot of employees like this method, as it’s a lot easier from their point of view.

If you have to use the Operating Cost Method, you have to keep a logbook of your driving so the bean-counter in the office knows how many kilometres you drove for business and how many you drove for private use. In this context, remember that the drive to work in the morning and back home again in the evening counts as a private trip. However, if you had to take your car out to ferry a broken computer to the fix-it whizzes, or if you were asked to go and pick up the visiting consultant from the airport, this would count as a business-related trip. The number of kilometres you drive for business and for personal use are used to calculate what your fringe benefit is actually worth.

If you have a lot of driving to do as part of the job, e.g. for sales or as a mobile consultant or something like that, then a novated lease probably isn’t the best option for you. And you will have to keep a logbook all the time.

Is A Novated Lease Right For You?

Some of you might think that a novated lease just isn’t for you. You might think that your boss is never going to agree to it, or that novated leases are only for those on super-high salaries. Or else it applies to people who have to drive interstate all the time who qualify for novated leases. You’re only here at this site to find out more about getting a personal car loan.

Well, while we can’t do much about an unwilling boss, we can help you learn more about novated leases. You might be in for a very pleasant surprise. It could be that you would benefit from a novated lease and you might be able to novate your car after all.

Try our quick quiz to see if you are likely to benefit from a novated lease or from novating the car you already have.

  1. Do you use a car? If you answer no to this question because you work from home nearly all the time or because you prefer to use public transport and/or bikes, then a novated lease isn’t for you  unless you fancy trying to persuade the bean-counters at work that you need a novated lease on a top-notch bike. If the answer is yes, then you are likely to benefit from a novated lease.
  2. Do you need a car loan? Well, if you don’t need to borrow money to buy a car, it could be asked what you’re doing at a car financing site (OK  I get it: you’re after finance for some business equipment!). If you do need to borrow money to get your next car (and most of us do), then a novated lease will probably work for you.
  3. Do you still have money to pay off on your current car? You might be visiting this site because you need a second car. But you can also make a novated lease work for the car you already have, assuming that you’ve still got a bit to pay back on your car. With a sale and lease back agreement, you get the salary packaging benefits of a novated lease and also get the equity you already hold in the car back in the form of cold, hard cash (hmmm  I can think of a few things I could do with that money!)
  4. Do you use your car mostly for private purposes? And just to clarify things, the tax people consider driving to work in the morning and back again at night. And (go on  admit it!) most of us run a few errands on the way to and from work, such as dropping the kids off at school and picking up a bottle of milk and a loaf of bread from the(However, if you’re a contractor or a sales rep who has to keep a driving logbook and uses the car for work-related purposes most of the time, then a novated lease might not be the best option for you).
  5. Does your employer do the salary packaging thing? If they don’t, well, obviously, you won’t be able to get a novated lease unless you’ve very, very good at persuasion. If you employer does, then you should be all good.

If you answered yes to all these questions, then you are likely to find that a novated lease will work for you.

Got The Loan? What Comes Next?

It won’t be long, hopefully, until you have managed to find the financing package that suits you and your lifestyle best so you can get that set of wheels. It could be a personal loan or it could even be a novated lease system. But once you have got the car sitting in your garage and a debt to pay off, what come next?

Obviously, you’re going to pay the loan off. The weekly, fortnightly or monthly repayments are the standard way to do this, and this is something you need to talk about to us when you go about taking out a loan. These payments should be something that you can manage without too much of a squeeze. And if theyre monthly payments and you get paid monthly, its wise to schedule the date the payment goes through for the time of the month when the bank balance is looking a bit healthier rather than the skinnier end of the month. Otherwise, it’s baked beans time.

The sooner you can pay a loan off, the better, as this reduces the amount of interest that you end up paying. Some loans have a small penalty fee if you pay the loan off earlier to discourage you from doing this, but if you sit down for a bit with a calculator, you usually find out that this penalty fee is less than what you would have paid in interest anyway. Or do your homework beforehand and look for a loan that allows you to make large lump sum repayments or pay the lot off early.

Here are a handful of ideas to help you find a way to pay your car loan off earlier than the full term of the loan:

  • Make a tight temporary budget and see if you can cut a few corners off your other expenditure here and there so you can increase the amount of your repayments. Maybe you can postpone a holiday (or have a staycation checking out the attractions in your local area while you stay in your own house). Maybe you can have a temporary ban on retail therapy. Maybe you can buy clothes from second-hand shops. Maybe you can cook cheaper cuts of meat. Maybe you could Every bit you do to increase your regular payments will see that loan being paid off faster. You could even do this before you take out the loan, avoiding penalty fees.
  • Got a bit of surplus? Instead of blowing it on a shopping spree or putting it into a savings account, use the amount to pay a bit more of the loan off. The amount of interest you would have earned by putting it in the savings account is probably less than the interest you’ll not pay by whacking that loan down. A penny saved is a penny earned, and they can’t tax you on it, either.
  • Stay informed. Don’t just leave the loan amount sitting there and ignore it, apart from making the funds are there to meet the latest automatic payment. Know how much there is left to pay  it might be something that you can manage to pay off outright.

If you’re on the lookout for a new car and have seen an ad or an example of a machine you like, then you probably want to take out a personal car loan to buy one. However, when you’re in the process of shopping around, you may have noticed that not all cars with the same name are equal, and some are cheaper than others. What’s going on?

What’s going on is that manufacturers often make different variants within a model. This is a way of increasing their sales potential. Usually, there are three main variants. Here, we’re not talking about sedan versus station wagon variants, or short wheelbase versus long wheelbase, although this is another way that manufacturers create more variants and increase their market share. Equally common is the trend of having three variants with different levels of luxury.Usually, the differences are indicated by a set of letters and/or numbers or even a subspecies name attached onto the main name.

You have to be a wee bit informed to know which one is the luxury version and which one is the basic version (if basic is a word that you can actually use about new cars these days). Most of the differences are inside either under the bonnet or in the interior. Occasionally, the luxury variant has some exterior touches that make it look a bit different from the others. If you’re unsure, then have a look at the manufacturer’s website or brochures, or visit a good car review website like Private Fleet, which will let you know.

Now, if you are on the hunt for a new car, the difference between the variants usually means a difference in price. This means that if the weekly repayments for the high-end variant are beyond you, you may be able to afford the weekly repayments for the cheaper version, putting the make and model of car you like within your reach.

So what sorts of things usually make the difference between basic and luxury variants? Here are a handful of differences that you can expect:

  • The interior trim. The basic variants usually have a cloth finish while the luxury ones get leather or a better type of cloth.
  • Bells and whistles: The luxury ones usually have a few more gadgets and conveniences (e.g. electrically adjustable mirrors, cruise control, voice control) that the basic ones don’t. This is the biggie, and this is the main way that the luxury and the basic variants differ.
  • Sound system: While the basic model will have a sound system, it won’t have as many speakers or as powerful speakers as the posher version.
  • Engine: Often, the more powerful engine is only available in the luxury variant. The good news here is that the basic versions are often more frugal.

It’s slowly phasing out, but some marques have differences in the safety features as a way of making the basic model cheaper than the luxury version. This isn’t to say that the basic variants are unsafe but they can have fewer airbags and fewer active safety features. Do your homework. If safety is important to you and the luxury variant has the better safety level, you might have to scrimp and pinch a little more to save up the deposit for that one or to manage the weekly payments. And shop around for loans  you might be able to find one that you can manage, so talk to us.