Should I Go with a Novated Lease for My Next Car?

Layjayes13 on 06/12/2023 - 12:04

Hi all,

Was considering taking out a novated lease for my next car. The online calculators make it look for enticing but was wondering what are the hidden issues with leasing that the leasing companies don't tell you about?

Thinking of a $41k car where the lease will apply to the income of my day job which is $65k per year. I also get $20k per year from my night job which is separate.

Was thinking of a 3 year lease. Not sure if its more beneficial to go for a longer lease?

Also, if I had to wait say 10 months or so and in that time Toyota increased the price, would I be able to cancel the order and get my deposit back?

Thanks

Automotive Car

Comments

  • FoxJump on 06/12/2023 - 12:15

    Long term novated leases mean that if you lose your job and are unable to secure another job, then the early payout figure is:

    Months remaining X monthly finance component
    PLUS
    Months remaining X all-the-fees-that-arent-part-of-running-expenses
    PLUS if you want to keep the car
    Residual + GST

    In essence, you're paying FUTURE interest
    so, stick with 1 or 2 year novated leases.

    • geekcohen on 06/12/2023 - 12:21

      Long term novated leases mean that if you lose your job and are unable to secure another job, then the early payout figure is

      Not always. You just take over the lease repayments and then have to pay the running costs yourself.

      I moved jobs where the new job was a bit difficult to do the novated lease, so now I just pay the lease payments and running costs myself. I got more money overall moving new jobs, so wasn't a huge loss.

      • FoxJump on 06/12/2023 - 12:50

        I didnt know you could continue the NVL without the tax perks.

        • geekcohen on 06/12/2023 - 14:23

          Yes you can. Similar thing happened to my Dad a number of years ago.

  • Muzeeb on 06/12/2023 - 12:15
    +19

    Unless it's an FBT free deal EV or you're on the top tax brackets I don't really see how NL's are a deal anymore.

  • brendanm on 06/12/2023 - 12:16
    +22

    $41k car on $65k a year? Wtf are people thinking.

    • Muzeeb on 06/12/2023 - 12:19
      +2

      Maybe he's friends with the Lexus dude and they pick on each other's older cars. Gotta keep your mates happy.

    • SnowDragon on 06/12/2023 - 12:23
      +2

      It's 85k if you include the night job.

      I know of people who have decided they'll never be able to afford a house so splash out on a high yield investment.

      • brendanm on 06/12/2023 - 12:24
        +15

        Even on 85k it's silly. The FBT portion will only apply to the $65k job, so op might save $3.82 in tax, but pay 4 million in interest and other garbage fees.

        Of course you can never buy a house if you spend stupid money on stupid things.

        • ayjayes13 on 06/12/2023 - 13:05
          -1

          Was planning on buying a house next year. If the lease were to negatively affect my borrowing power I might just pay in cash.

          • JDMcarfan on 06/12/2023 - 13:14
            +15

            @ayjayes13: buy the house first then the car
            the lease will definitely affect borrowing capacity and you'll never know what you may need the extra cash for when you buy the house
            also having the extra cash on hand may let you go into a lower LVR bracket (and thus get lower interest rates)
            you can redraw from the loan when you need to buy the car and can haggle for a better price whilst doing so

            • Sleeqb7 on 07/12/2023 - 13:39
              +1

              @JDMcarfan:

              buy the house first then the car

              Which seems obvious to me, but when I first got my home I had people with shiny new cars telling me "I wish I could afford to do that" as I drove around a 25+y/o junker.
              Like, jeez.

              • JDMcarfan on 07/12/2023 - 14:01

                @Sleeqb7: haha ikr, suddenly they're super curious/sceptical as to how you could achieve it.
                meanwhile a few years later, my earlier sacrifices pay off and I can treat myself to a new car whilst still having a house.

          • Drakesy on 06/12/2023 - 13:25
            +7

            @ayjayes13:

            Was planning on buying a house next year

            Once you take out a $40k depreciating liability your ability to buy a house will diminish significantly.

          • Jake D on 06/12/2023 - 13:33
            +2

            @ayjayes13: of course the lease would negatively affect your borrowing capacity.

          • brendanm on 06/12/2023 - 14:32
            +5

            @ayjayes13: Do you have a car now? Just keep driving it.

      • Gdsamp on 06/12/2023 - 13:23
        +13

        insane comment

        • ayjayes13 on 06/12/2023 - 14:15
          +2

          Not at all. Just highlighting how subjective things are.

      • Muzeeb on 06/12/2023 - 13:23
        +17

        If you're looking at kids through an economic lens then you're doing it wrong.

        • ayjayes13 on 06/12/2023 - 16:10
          -5

          Its the same thing.

          I can see how buying a $41k on $65k income is stupid. But I see people with like 2 kids on the same money. That's even dumber.

          • anthman on 06/12/2023 - 20:03
            +5

            @ayjayes13: The sad thing is that in maybe even a few years, you will look at comments like your own and cringe at the incredulous lack of awareness, experience and maturity behind posting such comments. Life isn't as black and white as it may seem at the moment.

            • ayjayes13 on 07/12/2023 - 11:57
              -1

              @anthman: I won't.

              The downvotes are hilarious.

              • anthman on 07/12/2023 - 15:41
                +1

                @ayjayes13: Hey mate, that's exactly how someone who doesn't have self awareness would respond - I know the message isn't reaching you but I do have some hope that you'll pause and consider, just maybe, you might be wrong. Not trolling, genuinely trying to share some learned perspective.

        • randomusername2017 on 06/12/2023 - 20:45

          investment vehicle

      • montorola on 06/12/2023 - 14:14
        +10

        I think you need a few more years to mature up, then come back and ask the question.

      • lew380 on 07/12/2023 - 09:15

        When your sitting in a nursing home withering away from loneliness, you will be wishing for those grand kids running round excited for a visit. There's more to life than money in the bank, and you don't even have much of that.

        • Grunntt on 07/12/2023 - 10:36
          +2

          When your sitting in a nursing home withering away from loneliness, you will be wishing for those grand kids running round excited for a visit.

          You need to spend more time visiting a few nursing homes - what many wish for (visits from happy grandkids etc) very, very rarely happens to the great majority of residents across this country where people love to boast about how important family is to them.

          So having kids is not likely to guarantee those regular family visits. You may be one of the luckier ones and see them on Mother's/Father's Day, Birthday if they can fit you in to their schedule.

          • SlickMick on 07/12/2023 - 10:43
            +1

            @Grunntt: So true. I know someone who got a tattoo indicating how important family is to him, yet he never visits his mum just up the road.

            • Grunntt on 07/12/2023 - 18:42
              +1

              @SlickMick: I wonder what's worse for a resident of an aged care facility - not having anyone to visit you, or having kids/grandkids who don't think you're worth their time to visit?

        • ayjayes13 on 07/12/2023 - 12:31
          +1

          That's going off an assumption that those kids and grandkids come around to visit.

          • lew380 on 08/12/2023 - 01:39

            @ayjayes13: Maybe you have grand kids, and then they all die in a fiery crash, or they become estranged and don't visit, either way, your life will be richer by having had the chance at happiness, then just give up slowly accept your sad and miserable fate.

            My anecdotal evidence is that we visit our grandparents in nursing homes at least weekly, not always the grandkids but definitely the immediate children, plus they get wheeled out and paraded around at the odd family event if they are not too near deaths door. Not all family groups are depressed loners.

            I'm sorry, this is wildly off topic. Feel free to down vote me!

  • Drakesy on 06/12/2023 - 12:25
    +9

    Thinking of a $41k car where the lease will apply to the income of my day job which is $65k per year

    Sadly the answer is no, you're not paying enough tax to gain any benefit from it.
    Secondly the answer is no, that is a terrible use of what cash you are left with after tax.

    Only becomes somewhat viable at $120k+, even then you're getting slugged 12-15% interest - and they're never transparent about this. The whole NL industry really is a joke that takes taxpayer money and lines their pockets with it.

    • Reubzy on 06/12/2023 - 12:29
      +1

      Literally untrue, I have a NL that I began 4 months ago on 5.6%

      • Drakesy on 06/12/2023 - 12:29
        +1

        Please feel free to elaborate. :)

        • Reubzy on 06/12/2023 - 12:30

          12-15% is a complete fabrication

          • Drakesy on 06/12/2023 - 12:30
            +2

            @Reubzy: It's what i was quoted by multiple providers when i looked at taking out a NL :)

            • Reubzy on 06/12/2023 - 12:32
              -1

              @Drakesy: Yea…no. As someone who was quoted and actually engaged a NL this is a complete fabrication

              • Drakesy on 06/12/2023 - 12:32
                +1

                @Reubzy: kk

              • SlickMick on 07/12/2023 - 10:51
                +1

                @Reubzy: I find @Drakesy to be spot on. We have been on NLs for decades, but it's only because we choose to splurge on new cars. The tax savings in our experience are pretty much totally eroded by the fleet companies interest and fees.

                I don't know the interest rate, but when I do my own calculations @Drakesy's figure does not seem to be an exaggeration.

                The problem with NLs is you don't get to shop around. It's whoever your company chooses to work with. It's a very broken system. The only winners are the fleet companies.

                edit: you answered my question re who you're with. Now I'm angry that the companies I've worked for have only worked with sucky fleet companies. But I left the rest, because that's my experience with NLs.

          • 911r on 11/12/2023 - 15:58

            @Reubzy: I know multiple people on 14%, I'm on 12…so it's not a fabrication. I couldn't find anyone under 12 a couple months ago.

      • Noppy on 06/12/2023 - 13:18

        Who is this lease with? Is it common for the interest rate on these to be less than home loan rates?

        • Reubzy on 06/12/2023 - 13:35

          InsideEdge

          • SlickMick on 07/12/2023 - 11:03
            +1

            @Reubzy: holy crap, I just did a quote with them and they are far more expensive than fleet partners. No way that is 5.6%.

            I cannot see that you could possibly be saving money with their lease (despite them estimating I would save $20K over 5 years). (Fleet partners reckons we'll save $53K. what a joke.)

            • Reubzy on 02/01/2024 - 10:34

              @SlickMick: Must be your company has terrible rates, don't know what to say mate I have the paperwork that states it

              • SlickMick on 02/01/2024 - 11:35

                @Reubzy: I got a quote with InsideEdge. Better check your paperwork - something's not right.

      • Eeples on 06/12/2023 - 18:20
        +2

        Can you please check this 5.6% figure?

        Thanks.

      • brendanm on 06/12/2023 - 18:56
        +5

        Lower than a mortgage, seems odd.

    • blonky on 06/12/2023 - 14:55
      +1

      This, + most people don't realise the savings are mostly eliminated when they need to pay 20% FBT on the vehicle each year - EVs (up to 89k) are exempt from FBT which is the only way a novated lease makes any sense for private use

      I've seen quotes between ~7% to 15% (Custom Fleet, Orix on the upper end) going through this myself and went with InsideEdge (Macquarie Leasing) at 7.22% in May23

      • SlartiBartFozz on 09/12/2023 - 22:10

        It's not just BEVs, but PHEVs and FCVs are covered under the vehicle exemptions until March 2025 — there are a lot of people buying plugin hybrids that miss out on the fringe benefits tax exemption.

  • Drakesy on 06/12/2023 - 12:32
    +3

    Don't be like Tara

    It really is a sham

    • geekcohen on 06/12/2023 - 12:34
      +1

      I read that….. and as someone who had a NL, you just need to increase your allowance to factor in the increase in Fuel etc. From the time I started my NL to the time I ended it, I had to add $600 extra in because of the increase in fuel! It was $140 a tank when I started, and then it was getting to $200 a tank 18 months later. Even after 12 months, insurance went up, so I had to increase to allow for that.

      So just people need to keep on top of it, it cannot be a set and forget thing, you have to budget it like you do you do your normal household/day to day budget.

      • Drakesy on 06/12/2023 - 12:36
        +3

        Yeah, the thing is that they prey on the lower income people (50-70k a year) with fictional cost saving numbers and they expect that they'll never have to top it up, yet these are the ones most at risk.

        • geekcohen on 06/12/2023 - 12:37

          Agreed. Like Solar, sold on all these cost savings and that you will have no bill each month and you will pay your system off in x years, when in reality, it doesn't happen like that.

          • Jono05 on 12/12/2023 - 02:03

            @geekcohen: Haha, it’s nothing like solar. You’re comparing apples and oranges.

        • Reubzy on 06/12/2023 - 13:36

          Totally agree with this, only worth it at higher income levels

    • Muzeeb on 06/12/2023 - 13:00
      +6

      Poor Tara entered a contract without understanding it and ran to the newspapers with her sob story 🎻

      • Drakesy on 06/12/2023 - 13:23
        +3

        BuT I'M The ViCTuM.

        Same as those that took out $1 million loans then blamed the banks when they couldn't pay it back when the rates went up.
        I do worry for society sometimes.

    • brendanm on 06/12/2023 - 14:40
      +1

      I'm so sick of the ABCs personal stories garbage.

      • Drakesy on 06/12/2023 - 14:46

        Yeah, they do seem to be leveraging the sob stories hard at the moment,

        And i thought the Dailymail/News.com was bad.

        • brendanm on 06/12/2023 - 18:57

          They are all grifters.

  • Euphemistic on 06/12/2023 - 12:40
    +2

    You’ll save even more getting a vehicle valued at half that amount.

    Don’t forget that any lease you take out will require a residual payment at the end. That is, you’ll need to find $ equal to the value of the car in 3 years. This is another way to lock you in to leasing. Can’t afford to pay out, so roll the amount over into the next lease.

    I know of people who think they come out ahead wit go a novated lease because it’s ‘pre-tax income’and they ‘privately sell the car for more than the residual value’ but the reality is you’ll spend a lot less by buying an older car.

    • ayjayes13 on 06/12/2023 - 13:06

      I actually originally wanted to buy a used car from 2019-2020 but the price difference between a used one from those years and a new one makes getting a used one unattractive.

      • Euphemistic on 06/12/2023 - 14:26
        +2

        So look for one a little older then.

        • ayjayes13 on 06/12/2023 - 14:44

          Don't want to go older than 2018.

          I have $70k cash so could cough up paying a few more thousand but want to keep most of that money for a house deposit.

          • Euphemistic on 06/12/2023 - 14:52

            @ayjayes13: If you’re saving for a house go even older. It makes no sense to be saving for a house while spending even $20k on a car that’ll be worth half in a couple of years.

            Do you have a car to hang on to now? That would be even cheaper.

            • ayjayes13 on 07/12/2023 - 12:00

              @Euphemistic: I was initially going to buy a new car a few years ago in 2020 but at the time I thought I'd just buy a used one a few years down the track when they've depreciated substantially.

              In hindsight got that completely wrong so not fussed about depreciation now anyways. Could you have probably made a profit if I bought back then and sold now lol.

          • Drakesy on 06/12/2023 - 19:06

            @ayjayes13:

            I have $70k cash so could cough up paying a few more thousand but want to keep most of that money for a house deposit.

            So you're looking at a $350k house?

            • Jake D on 07/12/2023 - 11:17
              +1

              @Drakesy: Of course not. after spending over half their pay on a car loan for the next 3 years that deposit will be at least $75k

            • ayjayes13 on 07/12/2023 - 11:56

              @Drakesy: Around 550-600k house

  • Some Guy on 06/12/2023 - 13:09
    +4

    I looked into it a few years ago for a $65k vehicle on a salary of $140k.

    The weekly cost to me was going to be around $440. Roughly the same as my mortgage was at the time. At tax time, I would have got back around $5k. The NL guy would not answer questions, in particular why I was being charged GST on the vehicle.

    I just couldn't see the point in it and my accountant agreed. I ended up redrawing from my mortgage to buy the car outright, directly negotiating a lower price for the car, and claim as much for work use as I can.

    The only benefit would have been realised at tax time. Salary sacrificing has the same nett result, plus the benefit of having my money working for me and not going to a lease company. You still need to fund a vehicle though, so buy what you can for cash or loan cheap as you can get and pay it off asap.

    • boomramada on 06/12/2023 - 13:33
      +3

      redrawing from my mortgage to buy the car outright, directly negotiating a lower price for the car

      That is the correct answer. This topic been coverd few times before.

      • dylanando on 06/12/2023 - 14:18
        -1

        youd get laughed out these days for negotiating on a car.
        You might get a tank of fuel if youre lucky.

        • boomramada on 06/12/2023 - 14:33

          That is true for popular models but still paying cash is still the most cheapest option.

        • SlickMick on 07/12/2023 - 11:14
          +1

          We just said we want this car but it needs to have a tow bar and needs to be under LCT threshold. On top of a $3000 discount, they still threw in car mats and a full tank of fuel.

        • Drakesy on 07/12/2023 - 11:53

          It's not 2020 and the middle of covid ;)

          Discounting has returned well and truly.
          Even Honda dealers are suing because they can't move cars due to inability to discount.

  • Franky23 on 06/12/2023 - 13:30
    +2

    At your wage, I don't think the numbers tack up financially. Also it would depend on what your financial goals are. If you're going to be applying for a home loan in the next few years then your borrowing power will be greatly reduced.

  • ayjayes13 on 06/12/2023 - 14:16
    +1

    Appreciate all the insights.

    Will try and find one a few years and pay it in cash.

    • brendanm on 06/12/2023 - 19:00
      +1

      What is wrong with your current car? If you have $70k for a deposit, and spend even $20k on a used car, that significantly impacts your borrowing power, and avoiding lmi.

      • ayjayes13 on 12/12/2023 - 12:28

        Nothings wrong with it. Its from 2004 and I've had it for 6 years and I'm going to sell it.

        There's $70k for the deposit but also $15k in crypto which is the money that I was going to put towards the new car anyways.

  • jv on 06/12/2023 - 15:40

    No

  • jv on 06/12/2023 - 15:42
    +4

    Thinking of a $41k car where the lease will apply to the income of my day job which is $65k per year.

    Maybe go for a $4.1k car

  • cashless on 06/12/2023 - 17:33

    No. Stupid idea

  • Eeples on 06/12/2023 - 18:24

    I think if your $20k is cash in hand NL won't help you much.

    When not considering NL….There may be lenders out there that will entertain a balloon payment (like NL has) to make your repayments less per fortnight/month.

    When considering a NL….. It might still be the case if you get a cheap fully electric (eg. GMW ora) or plugin-hybrid car then you can package the loan repayments too.

    EDIT: So, in your case if you are declaring the $20k… and you get a cheap electric/hybrid car … and if it allows packaging the loan repayments… and you get 5.6%…. then it might be worthwhile?

  • WreckTangle on 07/12/2023 - 07:13

    Only worth it for an EV. Which you definitely should consider.

  • loadofrubbish on 07/12/2023 - 07:37
    +1

    Novated leases affect your ability to borrow money, so if you are buying property during the lease term it will affect your borrowing capacity.

    • geekcohen on 07/12/2023 - 07:47
      -2

      it will

      Rather than it will, I think it should be phrased as, it can affect your borrowing capacity based on individual circumstances.

      You are correct though because the credit check and loan is against the individual's name, not against the NL Provider or Business.

  • jrvb42 on 07/12/2023 - 09:36

    Depends. For a new vehicle, almost certainly not, due to FBT being based on purchase price. If you go secondhand, with a youngish vehicle that has already depreciated substantially, yes.
    Then consider the term, longer term means lower repayments, but more overall interest. I think 2 or 3 years is a sweet spot.
    Finally, how many kilometres will you travel? Your fuel, maintenance, rego and insurance will all come out of pre tax dollars, so each dollar you spend here isn't taxed at 30+%. This is the area that makes the whole thing worthwhile.
    As others have commented, you need to be confident in your ongoing employment, or the ability to transfer the lease to another employer.
    Good luck. When I was working, I had 3 cars packaged, before the govt messed with the FBT rates, and it saved a heap of tax.

    • Drakesy on 07/12/2023 - 12:31

      before the govt messed with the FBT rates, and it saved a heap of tax.

      I think it's less of this more the NL companies blatantly profiteering so you only just come out ahead by Novated Leasing.
      Agreed the tax break days are over.

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