Making a purchase of an automobile is among the largest weekly expenditures of a number of Australians. A novated lease is also not so bad as it transforms the ownership of cars into a mere cost to be paid on a pay cycle, and the day-to-day running expenses are handled by your employer.
It is better to know the movement parts and what to consider as a provider before you sign anything. When you are comparing alternatives to use in your working environment, you will prefer to choose the best novated lease company on established price, offering good service, and the capability of establishing payroll provision without any frustrations.
What a novated lease is
A novated lease is among three-party agreements and entails you (the employee), your employer, and a lease provider. You borrow the car for a specified period, and your employer is ready to pay the payments on your salary. They are not buying you the car; they are just willing to make deductions and transfer them, which is why this benefit can be provided by many workplaces without having to own an automobile or run a fleet.
How it works in real life
The first step is to choose a car and a lease period (usually several years). The provider will have a rough estimate on the cost of running the business, such as fuel, rego, insurance, servicing, tyres and maintenance costs. At every pay period, your employer charges a specified amount and sends it to the provider, who remits the lease and takes care of the budgeted expenses. When your usage varies (i.e. you drive more than anticipated or the cost of fuel increases), the budget can typically be revised such that the deductions remain reasonable and you are not caught out in the future. An important fact is that in case you change jobs, you do not lose the lease: the lease does not vanish. It can be transferred to you in a new company (under novated leasing), or it can remain paid out of your own after-tax earnings until it is transferred.
Where the savings come from
The large attraction is that certain expenses may be deducted before tax using your salary, and this may decrease your taxable income and reduce your total car expenses. That is where the concept of salary packaging would have to be discussed: rather than having to pay the lease and operating expenses out of your bank account at the end of the payment period, your employer would put accepted expenses into a formal deduction. Part of the deduction can still be after tax because of tax regulations, but still, the combination can be better budgeting, and it could lower the overall cost of the car you pay for every bill after tax.
Why is it so popular in Australia
The Novated leasing suits the lifestyle of many Australians. It is malleable (you often have a choice of what car to get), it is less arduous on the cash flow (the expenses are spread across the pay cycle), and it can be set and forget after it is operating. It is also employer-friendly as the provider can take care of the set-up, payroll integration, and continuing employee support, and thus a business can have a great benefit without the burden of administration of cars, invoices and servicing schedules.
Getting started with confidence
A novated lease may be excellent, but this remains a contract, and as such, you need to look into the finer details that determine your actual cost. Here are the key things to focus on:
- Compare prices on the same car, same term, and similar running-cost budgets
- Inquire about what fees apply
- Confirm how leave and job changes are handled
- Check your end-of-lease options (pay the residual to keep the car, extend, or upgrade)
To make the process easier, find a provider that comes out clean on prices and offers support from quote to delivery. For example, Novated Choice is dedicated to making the process as simple as possible, so you spend less time on paperwork and more time on the road. Novated leasing can simplify the cost of cars, make them more predictable, and easier to plan when done properly.
