Fincar April 21, 2024 No Comments

Amid the current cost-of-living crisis, it’s understandable to be concerned about minimising costs where you can. In the case of a car, for many, this is an unavoidable expense, and one that is an enabler in order to provide a living. With this, it only makes sense to look at ways you can save money, and a novated lease is often touted as one such method.

As to whether a novated lease saves you money or not, this will ultimately hinge on a few factors – your individual financial situation, the terms of the lease agreement, and the way you use the car. On that note, you may want to consider these points.


Tax Savings

Novated leases are best known for potential tax savings. Under a novated lease, repayments are deducted from your pre-tax income, which can lower your taxable income and therefore reduce the amount of income tax you pay. What’s more, certain vehicle-related expenses like fuel and maintenance can also be paid with your pre-tax income.

Does a novated lease save you money?

Fixed Costs

As novated leases generally encompass fixed monthly payments, it is often easier to budget compared with dealing with the more unpredictable expenses in owning a vehicle outright. But there is a particular caveat to this. You must review the terms of the lease carefully to ensure that all of the costs you are paying make sense, and that you are aware of your obligations. Quite often, you may have to trawl through the fine print to understand all fees and charges.


Work Vehicle

If you use the vehicle that is the subject of a novated lease for work purposes, you may be able to claim tax deductions for expenses such as fuel and maintenance. What this means is that you can effectively compound your savings. On the other hand, if the vehicle is primarily used for personal reasons, the tax benefits available to you will be restricted.


Residual Value

At the end of the lease term, you may have the option to purchase the vehicle for a predetermined residual value. Of course, it’s not easy to foresee whether this is a good deal, but there is some inherent flexibility that comes with such an arrangement. Ultimately, however, the prevailing market value at the end of the lease, and the condition of the vehicle will dictate the value proposition.


As we mentioned from the outset, just how much money you can save from a novated lease will depend on how you use the vehicle, the terms of the lease, and your financial objectives. By and large, however, the structure of such a lease does provide some tax savings. Keeping this in mind, you will want to compare a novated lease against other financing options, where you will need to consider things like interest rates, depreciation, running costs, and so forth. If in doubt, speak with a financial adviser or accountant, who may be able to help you understand whether a novated lease is appropriate for you.


The Fincar team is here to help you with all your financing needs. Contact us today to help arrange your next car or equipment loan.