Hi Bargainers,
I am looking foe my first car. Budget around 30k. I am highly confused if I should go with Novated lease or my own finance or 0% interest(Toyota Camry in this case). I am also trying to save some to buy a house in future.
Somehow I am not able to understand the numbers behind Novated lease especially FBT. Any one can shed ome suggestions here? Also any tips to deal with the novated lease company?
Regards
novated lease is only good when you earn over 180K, anything less you are wasting money
Why over $180K
A lot of industries where union is big there are a lot of novated leases eg healthcare
Novated lease means car loan 8% - 12% interest + loan service fees
Also means no gst on car purchase
About half your top tax rate discount for fuel rego insurance maintainance
Persanlly for me the 8% -12 car loan payment kills most of the savings but vs pure car loan ill take novated lease.
I haven't seen novated lease interest rates higher than 6.5%. My current lease is 5.85% (leaseplan).
For reference, I have two options (through my employer) for Novated Leasing and the interest rate for both is much lower than the 8-12% range you've quoted.
One of them offers ~4.5%? And the other is about 4%.
Then it is all good then thats about the same as a home loan
If you save for a house look for a cheaper 2nd hand car I suggest.
Cars loose money the moment you buy them.
House make money in the long run.
You need to run the numbers for your situation, of which the most important is your marginal tax rate.
For a novated lease,
But
(Normally a salary sacrifice would attract Fringe Benefits Tax, but for novated car leases, the amount is reduced.)
Potentially there are huge financial benefits in a novated lease, BUT you have to make sure that the bulk of the benefits go to YOU, rather than the lease company.
In particular, the lease company will get you "a great deal" on a new car with their "massive buying power". But if you have your eyes on a $30k car and they say that they can get it for $26k then remember that just the GST off would already have got you down to about $27k. Getting a car for $4k off list is good of course, but $3k of that $4k was not anything that their massive buying power did.
0% finance doesn't exist. If you are being offered 0% finance, then the lowest price you can negotiate is higher than the lowest price without 0% finance. Instead of your interest payments, they collect it all in advance via a higher initial price.
A copy pasta of one of my replies to a previous post on this topic with a couple of edits:
Novated leasing can provide benefits even if you are on the 32.5% tax rate. The rule is A the cheaper the car B the higher your marginal tax rate and C the greater your operating costs then the greater your benefit from novated. Why?
A) This is because cheaper car has less FBT. Employers will not pay FBT on your car, so you need to contribute to its running costs from your AFTER tax salary an amount equal to the 'taxable value' of the car fringe benefit, plus GST, as an employee contribution to reduce taxable value to zero. Under stat formula method, the annual FBT payable is basically GST inclusive price of vehicle (excl rego and stamp duty) multiplied by 20%.
B) After the after tax deductions to make the employer FBT liability zero, everything else comes out of your pre tax salary so for every dollar deducted you save your marginal tax rate plus Medicare levy
C) It ties up to points A and B. If you have a cheaper car but don't use it much, you'll probably have half of the deduction coming from post tax salary and half from pre tax. If you use it heaps then all the additional spend is coming from pre tax dollars
The main savings of novated are
Paying for some of it from your pre tax salary
Saving GST on purchase price (you will have to pay GST on residual at lease end but that's often less than half the purchase price)
Paying your operating costs on ex GST basis
To a lesser extent leveraging the buying power of fleet company to get good price on vehicle purchase and servicing (dealers must get services approved by the company and it won't be approved if it is unreasonable)
How do novated companies make money?
Charging interest on financing. Make sure the rate is explicitly spelled out in the contract some companies rip you off here as suggested above. My novated lease is only 5.7%
Monthly management fee (mine is $15 per month)
Gobbling up fuel and servicing rebates from their suppliers without passing onto you (you don't pay a premium, they're taking a discount they're not passing to you)
Self provided add ons like insurance and roadside assist
Note your employer almost certainly won't give you choice of provider, there is a lot of back end admin and legals to get these agreements in place between employer and novated company. My work has an agreement with Leaseplan and they're very transparent. Whatever you do, get the monthly fee and management fee spelled out in the contract, run the numbers past your accountant and you should be ok.
As someone mentioned above there's no such thing as a free lunch - if they are offering zero percent finance it just means they are charging you too much for the car.
Best thing to do with purchase price is get the novated company to give you a written quote (they'll have pre negotiated discounts for most common models) and then get your local dealer to beat it - it cuts through the BS retail mark ups really quickly.
Finally don't do a novated lease for more than 4 odd years, because you still pay out of after tax dollars to make FBT zero on a car that's getting older and older (yes there is an FBT concession after four full FBT years but it's still pretty bad).
Source: I'm an accountant with a novated lease
Novated lease it's not that good for you as everyone says. Even on higher salary.
I ran the numbers over and over and over again for the last 4 months and it doesn't add up.
Buy a car with example this loan: https://www.anz.com.au/personal/personal-loans/car-loans/sec…
The car with no balloon will be cheaper than that purchased though novated lease (yes discount, whatever). Add in petrol, insurance, maintenance, etc, etc, etc and you will still be better off after 5 or less years.
The claim is bogus and the numbers don't add up as they have hidden fees. Again, vs the ANZ loan (search on google for better ones), you will pay more out of pocket after 5 years.
Does your work offer novated leases? Is your job secure? I've heard people say that novated leases are only really useful for higher incomes, and don't forget the balloon payment at the end. You'll need to speak to your accountant for the best solution for your situation.