So your boss has decided that you deserve a little something extra, and she or he is suggesting that a novated lease might be the way to go forward. It certainly sounds like a great idea. You get a nice shiny new car of your choice to drive around and use the way you want to, with no fiddling about with logbooks like you would with a company car, and you don’t have to worry about the repayments. And on top of that, you don’t get bumped up into a new tax bracket. Sounds like a novated lease is a win all round, right?
There’s an old saying that if something sounds too good to be true, that’s probably the case. Now, that advice is usually given to warn you off scams. Novated leases certainly aren’t scams; in fact, a lot of people really enjoy them and find them to be a great part of their salary package. However, it’s not the case that everything is all smooth sailing and that there are no downsides to novated leases. To quote another proverb, every rose has its thorn, and it’s not always 100% roses with novated leases.
So what can go wrong with a novated lease? What are the downsides?
The biggest and most common issue crops up because a novated lease is a three-way deal linking you, your employer and the leasing company. After all, the whole point of a novated lease is that your employer takes care of your car repayments. You don’t have to. However, what happens if you end up not working for that company any longer?
Let’s face some hard facts. While a lot of employers who offer novated leases are great people to work for, there are some bosses who are absolute gits. Toxic workplaces exist, and in some cases, it may be the best thing for your sanity to leave and look for a new job. Or perhaps the company you work for has fallen on hard times for some reason (remember what happened in 2020, everybody?) and is having to downsize (ouch!) or shut down completely (ouch again!).
If one of these situations happens to you, things get tricky with the novated lease. After all, the financing company still needs to have the car loan repaid. You can see if your new employer is willing to keep up the novated lease. You can opt to take over the repayments yourself, just like you would with a normal car loan. Or you could go for an early termination, in which case, you have to pay for the residual value and a bunch of other fees and costs.
All of these options can prove to be a real headache. The easiest, at least from your point of view, is to have the new employer take over and set up a salary sacrifice deal with them. However, if you don’t get a new job straight away, this might not be an option. Taking care of the repayments yourself might be easier from a logistics point of view but can hit you in the pocket a bit hard, especially if you’re in between jobs. Early termination can also affect your credit rating as well as being hard on your pocket – but at least it deals with the problem once and for all rather than dragging things on.
If you are considering leaving your job or have been made redundant, then it’s VITAL that you talk to your finance company (e.g., the team here at FinCar). We aren’t going to judge you. But we will help you walk through the options and work out what’s best for your situation.
Novated leases are often set up by employers to ensure loyalty. This is often a good thing – it’s a sign that the boss likes what you do and wants to keep you on. You’ve got some sort of job security. However, it can also make it harder to leave if you want to. Even though we’re all for novated leases in general here at FinCar, we suggest that if you are having doubts about your workplace (e.g., you’ve been pushed to give up way more of your personal time that is healthy, or the HR department isn’t doing anything about the coworker or supervisor who can’t keep his/her hands off other people’s butts), then a novated lease probably isn’t for you.
The other issue that can crop up with novated leases is that they may not apply to you. Note that novated leases are part of a salary package. If you’re a contractor rather than an employee on a salary, you can’t set one up. This can come as a surprise to some sole traders who have heard of the benefits of novated leases – such as the current fringe benefit tax exemption that applies for electric vehicles (and for plug-in hybrids… but only until the end of March 2025).
Communication is always the key, so if you have any questions about setting up a novated lease or if you are considering leaving your job, then please bring all your questions to us. Seriously: we’ve heard all the questions before, so don’t feel like you’re asking a dumb question. There aren’t any dumb questions, so please ask us about anything you’re not 100% clear on.