It may sound like the thing your accountant might mention that makes your eyes grow heavy, but novated leasing is something that you should be aware of. It’s something you need to know before you purchase a new car.
Traditionally, purchasing a new car involved two main parties: the buyer and the seller. However, if you introduce your employer into that type of relationship, you’ve automatically got yourself a menage-a-car that could potentially save you more money than you could. With that said, welcome to the world of novated leasing. This article will teach you the ins and outs of this agreement.
What is Novated Leasing?
Novated leasing is the Australian term for the method of paying your vehicle via salary packaging, which means your employer will pay your car payments for your convenience out of your pre-taxing earnings.
How Does It Work?
You will need a novated lease calculator for this, but your car dealer can also help you with the calculations. Commonly, a novated lease agreement stretches for two to a full five years. On your last year, you will be given the option to either trade in your car for an updated or newer model or avail a new lease, or paying a buyout payment to keep your vehicle for good. An obvious benefit that a novated car lease provides is you not having to keep an old vehicle in your garage for too long. Instead, you’ll be getting a new one, or if you do value your old car, you can choose a buyout to keep it forever.
If youcan’t decide between deciding whether to go for novated lease or a regular car loan, here’s a fact to help you decide: a car loan involves payment using your post-tax salary. That means you are paying for whatever’s left in your bank account after paying your taxes, which is very inconvenient since you’re going to run out of budget more often that you should
On the other hand, a novated car lease is paying before your tax. That means you get the car you want without compromising your money, allowing it to extend further. At the same time, you’re also reducing your taxable income. To get the right amount, you also need a novated lease calculator to get the car you want that also matches with your budget.
You Are Not ‘Renting’ Your Ride
As much as the name of the agreement says otherwise, you are not renting. Car rental is when you pay a considerable amount of money to gain the right to “borrow” a worn out and visibly overused vehicle. That’s nowhere near the concept of novated leasing. This agreement allows an employer to lease a new car on behalf of its employee, with the payments shouldered by the employee and not the business. That’s why if you’re looking to own a car, novated leasing is the best option.