Novated Leasing- A Huge Mistake

DBBROS on 03/07/2017 - 02:49
Last edited 03/07/2017 - 09:03 by 1 other user

Hi, I am currently on a novated lease for which the contract is about to finish in November. My car is a 2015 Suzuki Swift with an FBT value of $15,990 on a budgeted 30,000 kms annually with a residual value of $10,000.The lease period was from February 2016 till November 2017.

Theoretically, I am supposed to reap benefits being under a novated lease by saving GST and so on but in practice my account still shows a negative balance and I am paying around $520 pre tax money every fortnight. The sad part is that I haven't used the car for the past seven weeks as it is still getting repaired after I hit a Kangaroo. They have been deducting money for tyres, maintenance and insurance which should be covered in the fortnightly lease payment. I happened to ask the same thing to another Lease company and they said that I could have financed it from a different company and that I could chose the car from whichever dealership I wanted to. I was asked to collect the car from Bathurst, NSW which is around 553kms from where I live.

One of the main reasons I went for a new car is because I do a lot of kms and I live in a rural area and it wouldn't be a good thing if the car is stuck in an isolated area where there is not enough network coverage and will have to wait quite a while until help comes. Some of my friends who owns used cars have no problems whatsoever and get more benefits than myself.

I have no plans to keep the car after the lease and I was wondering what the best option would be - used cars or new cars?
I only thought about all of this when I had to walk to get to work and to the shops.

Any suggestions and advice would be really appreciated. TIA

Automotive

Comments

  • Euphemistic on 03/07/2017 - 07:36
    +7

    Best option is always used.

  • supnigs super skids on 03/07/2017 - 07:52
    +6

    Novated leave would of worked out better but you hit the kangaroo and didn't meet your targets

  • [Deactivated] on 03/07/2017 - 08:06
    +1

    February 2016 till November 2017

    20 month lease? seems weird lease term.

    $520 pre tax money every fortnight

    I suspect there's a pre-tax and post-tax component to this amount … but it still seems ridiculous:

    52020months2 = 20k + 10k residual… wow that's gotta be the world's most expensive swift.

    I was asked to collect the car from Bathurst, NSW which is around 553kms from where I live.

    How far is the nearest suzuki dealer from you?

    They have been deducting money for tyres, maintenance and insurance which should be covered in the fortnightly lease payment.

    Not sure why you're still showing a negative balance then.

    • DBBROS on 03/07/2017 - 11:39

      The nearest one is in Dubbo which is around 350kms and another one in Orange which is like another 90kms. There is two dealerships before I reach Bathurst.
      The number of lease payment is 19 according to the statement

      • [Deactivated] on 03/07/2017 - 11:44
        +1

        The nearest one is in Dubbo which is around 350kms and another one in Orange which is like another 90kms.

        So you live in the middle of no-where. The choice would've been to pay or delivery (or negotiate it in the price) or go collect …

        The number of lease payment is 19 according to the statement

        Lots doesn't add up about the information you've listed. The moral of the story is to understand what you're signing up for.

        • DBBROS on 03/07/2017 - 13:19

          Well…. I am to blame for not doing enough study on the subject. My situation was different. I was really in need of a car there was no one to help me with the best option that would suit me. And I guess this is another lesson that I have learned

  • bobbified on 03/07/2017 - 08:49
    +4

    Did you work out the real (after all the tax benefits and running costs such as fuel and servicing) cost of the lease and what it means for your net financial position before you signed up for the lease? The costs of insurance, servicing and fuel can be bundled into the regular payment.

    Leasing isn't bad if you actually make use of the car in the way you planned for and your personal situation suits. Your marginal tax rate is the factor that determines how much you'll benefit from such an agreement.

    The main gripe in your post seems to be from not being able to drive the car for the past 7 weeks because you've hit a kangaroo. I'm not sure if you can really blame the continuing payments directly on being in a lease agreement. Had you taken out a car loan instead, you'd still be paying for the loan if your car is out of action.

    November is only a few months away so you'll be out of that arrangement soon. Now you need to determine whether to sell the car (if you can sell it for more than $10K) and then pay off the balloon (pocket the difference) or hand the car back.

    My suggestion would be, if you're planning on getting another car soon, to speak to a financial planner to determine what your benefits are with the different arrangements and options depending on your own financial circumstances. They'll be able to calculate and tell you the exact differences/savings between buying a new/used car outright and going on a lease. It is possible to buy a used car on a novated lease.

    • DBBROS on 03/07/2017 - 11:55

      At least I could still blame myself for not having a car for the past few weeks . It is definitely not worth it according to my calculations to pay around 10k at the end of the lease period. From a quote which I recall, the payments were $390 after a deposit of around $1500 and so by the end of November I would have fully owned the car with no liabilities. Also there was an EOFY sale as soon as I got it through lease. Initially the budgeted kms were 10000kms but my account was so behind that I had to increase it to $30000kms. Thanks I will ask an opinion from my tax agent to see what are my best options

  • EightImmortals on 03/07/2017 - 08:57
    +1

    If you can claim heaps off your tax then go for new. If not then used all the way. I've had heaps of cars over the years and never had any problems with Japanese cars. I prefer reliability over resale value as I'll try to get 20 years out of a car (unless I get tax benefits by swapping sooner).

    • DBBROS on 03/07/2017 - 12:02
      +1

      Few of my friends who owns used Toyota Camry's had no mechanical problems whatsoever and they run like charm. I was thinking of getting a skoda octavia wagon after this but my friend who owns a VW Tiguan wouldn't recommend it due to the increased service costs as the VW and horrible resale value.

      • whooah1979 on 03/07/2017 - 13:35
        +1

        Few of my friends who owns used Toyota Camry's

        Your friends made a smart choice buying the best sedan ever build. Get corolla if a hatchback is more your thing. A hilux or Prado with a steel bullbar would be perfect for that next kangaroo.

        • DBBROS on 10/07/2017 - 13:17

          Thanks. I am keen on getting a wagon than an SUV which I would like to keep for a while.

      • playswithfire on 05/07/2017 - 16:13
        +1

        The Skoda Octavia's are fantastic cars. The service costs are far less than my old Hyundai, and resale value seems to hold pretty well according to CarSales.

        • mousie on 01/04/2019 - 11:08

          How long have you had the car for?

  • John Kimble on 03/07/2017 - 11:05
    +1

    They have been deducting money for tyres, maintenance and insurance which should be covered in the fortnightly lease payment.

    I could be wrong (and it might not be worth the trouble) but can't you contact the lease company and reduce your payments in terms of the maintenance?

    Also, don't you get all the surplus payments (in relation to that stuff) back at the end?

    • DBBROS on 03/07/2017 - 12:17
      +1

      If I am to reduce the running costs, I would have to reduce the annual kms which could set me back as this is the only car I own and I would need it for short trips as well as long trips. I was using my motorcycle to get to work thinking that it would make a difference but it hasn't. I have received around $250-300 in total which account for the fuel and car wash costs before receiving the fuel card and there are still some payments including a tyre left unpaid which amounts to $140. They will only get repaid if your account has a positive balance and even if it does, it won't stay for long. It is why I was adamant with the car repairers that I won't pay it out of my pocket as I am not sure on when they will refund the money. But if you want to service the car, it is quite easy as they only need an authorisation from the lease company and they will do all the maintenance work which is paid by the lease company but still gets deducted from your account. It is tricky

      • 2ndeffort on 03/07/2017 - 15:09

        The money you put into running costs is kept for you in a pre-tax account. It isnt lost or taken by the lease company as profits. I've had loads of lease cars and the leasing folks always pad out the maintenance costs because if your car breaks down it is better to have extra maintenance budget than not enough. Call the lease guys and ask how much is in your maintenance account. If you dont use the maintenance $$ during the lease they normally take out tax then give you back whatever is left at the end of the lease. Also if you think there is too much money because there is 7 weeks of petrol you haven't bought you can ask them to refund you some of the maintenance $$ or to reduce the monthly maintenance costs to account for the extra you now have sitting in 'the bank'.

  • [Deactivated] on 03/07/2017 - 11:45
    +1

    I have no plans to keep the car after the lease and I was wondering what the best option would be - used cars or new cars?

    Why? Because of the damage? Otherwise, you'd already paid for the car at the end of the lease … might as well keep it.

    • DBBROS on 03/07/2017 - 12:19

      Nope I haven't. If I have to keep the car, I will have to pay the residual value of $10000 and all the costs that came before only include the lease and finance costs

      • [Deactivated] on 03/07/2017 - 12:28

        If I have to keep the car, I will have to pay the residual value of $10000

        What sort of car will you get for $10000?

        • DBBROS on 03/07/2017 - 13:08

          My friend paid around $14000 for his 2014 Toyota Camry from Pickles auctions and it was under 50000kms. If you do shop around you can get something better for the same price. I would have considered to buy the car if it was in the $8500-9000 range

        • [Deactivated] on 03/07/2017 - 13:16

          @DBBROS:

          My friend paid around $14000 for his 2014 Toyota Camry from Pickles

          Not sure where to begin … there's a world of difference between a 14k camry and a 10k swift.

        • DBBROS on 10/07/2017 - 13:08

          Should I keep the car or sell it and end the lease agreement? This car hasn't given me any problems mechanically but boot space comfortable driving is still an issue and I really doubt if I could sell it for $10000.

        • [Deactivated] on 10/07/2017 - 13:26
          +1

          @DBBROS:

          I really doubt if I could sell it for $10000.

          The problem is you're in a remote location, so selling privately is almost impossible.

          Redbook says the trade in value of the car is 8500-10000. I would ask the leasing company if you can hand back the car at the end of the lease. Make sure you understand where the car needs to be delivered to and what they'll charge for dings/scratches/etc.

        • DBBROS on 10/07/2017 - 14:20

          Thanks. Will do

      • [Deactivated] on 05/07/2017 - 23:41

        You need to check the lease end clause of your novated agreement - it may not be as simple as handing the car back at lease end and saying you don't want to buy it. Chances are you have to buy the vehicle at lease end for its residual value plus GST

        Potentially the leasing company may sell it on your behalf and any surplus or shortfall between sale price and residual comes into or out of your pocket, but they'll just take it to an auction house like Pickles and you'll get a worse outcome than if you sold it privately

        • DBBROS on 10/07/2017 - 12:08

          Jeez. I was thinking of taking it to the pickles auctions and sell it as novated re marketing. No idea on how it works but will ask them about it

        • [Deactivated] on 10/07/2017 - 13:28

          @DBBROS:

          I was thinking of taking it to the pickles auctions and sell it as novated re marketing. No idea on how it works but will ask them about it

          Pickles will charge you a few hundred dollars as their 'sellers fee'.

          It's a good option if you don't want the hassle of selling privately, but if your car is in good condition (ie few scratches/dent), you'll probably get a similar price for a trade-in.

  • playswithfire on 03/07/2017 - 11:52
    +3

    Which company is the novated lease through? Also, it sounds like your payroll department haven't set the novated lease up correctly. I have a novated lease on a 2015 Skoda Octavia. Purchase price was $25k, they take $221 pre tax and $187 post tax each fortnight. I'll have an $11k residual at the end of the lease next year.

    As for the kangaroo issue - that counts as days the car is unavailable which needs to be accounted for in the FBT reporting year and adjusted accordingly. They still should be deducting the payments from your salary however the excess will be accruing in your account with the leasing company as you're not driving the car. As mentioned by John Kimble any surplus in your account will be refunded to you at the end of the lease. You're also supposed to have GST for petrol/servicing/tyres/insuance etc refunded to you through payroll.

    Happy to help out further since I've done a couple of novated leases now and it's always worked out to be better for me and my family.

  • jason101 on 03/07/2017 - 12:20

    I am not an expert in this area but … Short lease term, low value car, possibly you are in a lower tax bracket. Also not all leases include maintenance, servicing etc - you selected a lease which included all of these items. All of these variables are not really the fault of the Novated Lease as such but your application of the concept.

    • [Deactivated] on 05/07/2017 - 23:34

      Low value car is actually a good thing as far as novated tax effectiveness is concerned

      Lower tax bracket and short lease term however will make novated less effective

  • DBBROS on 03/07/2017 - 12:40

    Thanks I am with lease plus and I am an employee of NSW health. All I can see from my pay slip is that the lease payment is paid as pre tax and the GST often is delayed from what the salary packaging team has told me as they get short staffed. The current salary packaging team is replaced by Maxxia - a private firm by mid July. I am not sorry sure how it's going to end up as I have lost faith in Salary sacrificing through novated leasing.
    I checked my account statement and it does not seem to show any accrual as it keeps getting over run by insurance renewals, management costs, lease payments and monthly fuel fees.
    How is the Skoda octavia? It is a car I am seriously considering of buying one day

    • [Deactivated] on 03/07/2017 - 13:19

      Thanks I am with lease plus and I am an employee of NSW health.

      I'm familar with the NSW Health packaging schemes - they're not the best, but they're not the worst either.

      I highly doubt the lease is as terrible as you're making it sound. At worst, you're probably a few hundred dollars up/down, compared to buying outright.

    • playswithfire on 05/07/2017 - 16:17

      I think this might have been meant to be a reply to my post earlier. As I said above, the Skoda is a fantastic car and I'm most likely going to get another one when this lease finishes!

      I don't know if I can PM you on this but reply with your email address so I can send you a copy my payslip where it breaks down the pre-tax/post-tax deductions so you can see if you're having it done correctly.

  • DarkOz on 03/07/2017 - 13:46
    +2

    All the taxes you saved are paying for the higher interest rate. Novated leasing a new car saved you 10% GST which is the real saving as long as you didn't pay RRP for the car. It's just a pity you had an accident and you could not use the car to save on tax.

    • 2ndeffort on 03/07/2017 - 15:12
      +1

      you are also paying all of your maintenance and running costs out of pre tax $$. This is more attractive if you have a higher marginal tax rate.

      • [Deactivated] on 05/07/2017 - 23:28

        Just further to this, you are paying a portion of the rental out of pre tax dollars as well (cheaper car = lower FBT = more pre tax component)

        GST saving will not be huge for such a short lease term & high residual - yes you claim the ITC when you buy the car but you have to pay GST on the residual value at lease end so it's only the difference between the two you keep

  • [Deactivated] on 03/07/2017 - 15:18

    I have no plans to keep the car after the lease and I was wondering what the best option would be - used cars or new cars?

    Your best option might actually be to trade in the car and get a new novated lease.

    Get a quote from maxxia and post the details here on on whirlpool, so someone can help you figure out whether it's a good deal.

  • megadeth on 03/07/2017 - 19:41

    Novated lease interest rates (although from pre tax dollars) work out to be 15% per annum easily. The novated lease company ends up reaping all the rewards from any 'saved' tax. Think saving up for a few months and buying a used Camry/Corolla with known history is the best option for most people who need a car for transportation (not hobby etc).

    • [Deactivated] on 05/07/2017 - 23:21
      +2

      My novated is with leaseplan and interest rate is 5.35% - if you get novated always get the interest rate spelled out for you in the contract as a lot of providers don't do this

      • [Deactivated] on 10/07/2017 - 13:21

        if you get novated always get the interest rate spelled out for you in the contract as a lot of providers don't do this

        Spelling out isn't enough.

        A novated lease a 'commercial' finance contract. There's no interest rate quoted anywhere on the contract, only the repayment and residual. You need to check that the payment amount adds up to the quoted interest rate.

        Leasing companies will often build in all sorts of fees and charges into the monthly payment, so even though the interest rate is low, the fees and other charges kill it.

  • DBBROS on 15/11/2017 - 18:41

    A final update. I have managed to sell the car through pickles for $10400 by paying a gap amount of $2750.The residual was $10073. Bought a new skoda octavia wagon through finance in the meantime.

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