Novated Lease VS Taking Out a Loan For First Car Purchase

Retailer123 on 15/05/2019 - 07:54
Last edited 15/05/2019 - 19:47

Hi All,

I was looking at buying my first car, I'm a 23 y/o with a entry level job at the moment. Just looking at my best options here.

Thing is, I really wanted to increase my Credit Score because I have little to none at the moment, have always bought things outright.

Few questions I had:

  • Do Novated Leases count towards my Credit Score rating?
  • Anyone made the decision between taking out a loan / doing a salary sacrafice for a car purchase who could provide some input on what's the better choice?

Thank you in advance!

Financial

Comments

  • Duram on 15/05/2019 - 08:15
    +81

    Pay cash.

    • kaitoivan on 17/05/2019 - 16:25

      Pay in gold.

      • serpserpserp on 18/05/2019 - 09:02

        Probably get a better deal paying in frankincense or myrrh.

    • cerealsmok3r on 20/05/2019 - 14:39

      cash is king.

  • EFC94 on 15/05/2019 - 08:19
    -3

    Definitely a novated lease, try to get a car worth around 50k to get best bang for your buck as well.

    • abuch47 on 16/05/2019 - 18:14
      +7

      obvious sarcasm is obvious, c'mon prententious OzBers

  • Bid Sniper on 15/05/2019 - 08:19

    Novated Lease = Rental. You're not buying a car you're renting it.

    Pay for most of the car cash then small car loan for rest, will be enough.

    • toomuchdogfur on 15/05/2019 - 09:39
      +1

      Not true actually - I thought this too until I got into a Novated Lease. The leasing company doesn't care about the car itself as long as they get the residual value paid out, whether that's you selling the car to pay for it or just paying the amount out with your own cash.

      Functionally, it ends up being the same as car financing with a balloon payment (e.g. pay 50% over three years and the remaining 50% at the end of the lease).

      • Bid Sniper on 15/05/2019 - 11:48
        +17

        Doesnt make sense.

        In 3 years a car (depending on model) is only worth 50% anyway. So ballon payment is value of the actual car and 3 years is depreciation you pay to the lease company. Everyone wants to avoid or cannot afford the ballon payment so they enter another lease agreement. So prepetually paying maximum rate of depreciation which really is just ends up renting a car. This can easily exceed 12k a year or more. Then factor in insurance on a more expensive car and possible non warranty repairs on a Ex expensive car.

        OP is young, better off buying a cheap 1 to 3 year old car with his own money outright and saving the rest.

        When i got a home loan all they cared about was job, income, savings. Big deposit means more than a car rental.

        • CandyMan on 15/05/2019 - 13:45
          +6

          You can do Novated lease on used cars. But It will also depreciate. It will depreciate if you take a loan and pay interest. And it will depreciate if you pay cash.

          • Bid Sniper on 15/05/2019 - 13:57
            +1

            @CandyMan: Had a look at that too, need to be doing over 15,000km a year to barely make any saving. its still better to own outright, save on; interest, insurance, depreciation, servicing. Again make no sense or only in specific cases (car used for business bought using ABN)

            PS. I saw an one year old Hyundai i20 manual at auctions. Looked new $4.5k only, thats less than a 9 months of a Novated lease and you own the car. As a cheap daily brilliant, run out of petrol buy a new one lol

            • smartazz104 on 16/05/2019 - 14:24
              +3

              @Bid Sniper:

              PS. I saw an one year old Hyundai i20 manual at auctions. Looked new $4.5k only

              I didn't think Hyundais depreciated this much, probably something wrong with it.

              • Bid Sniper on 16/05/2019 - 15:05

                @smartazz104: Manual transmission was the problem, econobox manuals are hard to sell. Let alone manual cars in general these days. That one was undervalued but was a liquidation sale, so no reserve on anything.

            • toomuchdogfur on 16/05/2019 - 16:28
              +9

              @Bid Sniper: You don't "save on insurance, depreciation, servicing" by buying outright - these costs are exactly the same if you novate, take a loan or pay cash. The only difference is that in a novated lease, you can pay for those costs with before tax income, effectively discounting them by your marginal income tax rate (between 19% and 45% depending on where you sit).

              You can get used cars under a novated lease. Go ahead and novate that $4.5k car for a year - you'll pay $630 extra in interest vs cash, but
              you'll save at least $1k in return on fuel/insurance/servicing/etc at the minimum (lowball estimating $500 in total running costs per month with lowest 19% marginal tax rate).

              I get that you're advocating for OP to buy a used car to save cash (and I support that too - all my cars have been used ones), but please refrain from spreading false information about the options they are looking at.

              • Bid Sniper on 17/05/2019 - 08:46

                @toomuchdogfur: Disagree, everyone I talked that seriously looked into it (including myself) couldn't make the numbers work. There is no $630 in interest because buy the $4.5 car outright. As for the pre tax argument, yes there is a saving there but pales in comparison if you do it like I mentioned above.

                Make all the cost separate, shop around on each cost item, can find a better deal yourself. I know what retail and stealership pricing is. Wholesale discount probably 10%-20% (Trade pricing is 20%) but can shop around to more than that easily.

                Problem is each of these costs are not listed, its all bundled together so impossible to make a comparison, this is deliberate. Dilbet comes to mind;

                https://en.wikipedia.org/wiki/Confusopoly

                I dont accept "because its cheaper" argument without actual numbers, hell I even went to a repo auction last night, all ex lease Euro cars, there is a reason for that. There is a reason why lease companies make stupid amounts of money, they are not charities.

                • toomuchdogfur on 20/05/2019 - 12:04
                  +1

                  @Bid Sniper:

                  everyone I talked that seriously looked into it (including myself) couldn't make the numbers work

                  Of course no-one can make it work, you keep comparing your $4.5k car to OPs proposed $25k car. You're mixing two completely separate issues (Novated Lease vs Loan and Buying 25k car vs a cheaper one).

                  There is no $630 in interest because buy the $4.5 car outright. As for the pre tax argument, yes there is a saving there but pales in comparison if you do it like I mentioned above.

                  As I already said, the interest is if you, for example, novate your $4.5k car. Let me break this down for you:

                  Cash Novate
                  Car purchase $4,500 $4,500
                  Interest $0 $630
                  Running costs $6,000 $6,000
                  Tax savings $0 $1,000
                  Total after 1yr $10,500 $10,130

                  I'm by no means recommending doing the above for such a minimal saving, I am merely demonstrating that the tax savings often offset the interest costs

                  Make all the cost separate, shop around on each cost item, can find a better deal yourself.

                  Sigh… The running costs are exactly the same whether you pay cash or lease. You choose the car and where you buy it from. You pick the place you service it at. You pick out what insurance and rego provider you want. You go and replace your tires. Again, the only difference is that you can use pre-tax dollars to pay your running costs.

                  Problem is each of these costs are not listed, its all bundled together so impossible to make a comparison, this is deliberate.

                  What are you talking about? Any leasing provider worth their salt provides a breakdown of how they allocate your money - after finance payments, the rest of your pre-tax dollars is allocated to a fund, which you draw from when you go out and get your tires replaced/car serviced/fuel/etc.

                  You have no clue how novated leasing works, and yet you keep commenting on it as if its universally a Bad Thing.

                  I dont accept "because its cheaper" argument without actual numbers

                  Where are your numbers? And don't pick up your $4.5k car again as an example - compare OPs $25k car in cash vs leasing, and all the costs associated with that too (e.g. OP is more likely to pick up comprehensive insurance for a car of that value, not just TPP).

            • FrugalDealHunter on 16/05/2019 - 16:53

              @Bid Sniper: bar a mechanic, no one is going to go to a auction and buy a car which you can view only for 10mins

        • trapper on 16/05/2019 - 11:43
          +2

          When i got a home loan all they cared about was job, income, savings. Big deposit means more than a car rental.

          Exactly, 'credit score' only comes in to it if you have messed up with credit in the past, there is no need to increase it above 'Im not an idiot'

    • Retailer123 on 15/05/2019 - 19:29
      +5

      It's my first time looking into something like this, but this is what I was being offered.

      Basically if I was looking at buying a car within the 25k range, I'd have to pay off the following for the Novated Lease:

      • Paying approximately (this is the figure i was quoted) $600 per month / $7200 Per Year / $28,800 over the 4 year lease period. This cost is also including the running costs of the car (Fuel, Rego, Insurance, Road side Assist , cheaper rates for tyres/servicing)
      • At the end of the lease, I can choose to buy the car if I pay the residual amount.This is supposedly determined by the ATO. If I was going for the 4 year lease, the residual amount would be 37.50% of the car's worth at purchase which is $9375.
      • End of the 4 years, for the car to be mine, I'd be paying $28,800(over the 4 years) + $9,735(residual amount) = $38,175.

      Meanwhile, if I took out a loan of for $25,000 from a bank, I'd have to pay off the following:

      • Approximately $682 Per Month / $8184 Per Year / $32,736 over the course of 4 years.
      • Running costs of the car would be at about 2.5-3.5k a month I can assume? If I'm wrong then please feel free to correct me about this. $3,000 x 4 = $12,000
      • Total cost at the end of the 4 years would be $32,736 +$12,000 = $44,736.

      I'm not sure if my numbers are wrong, but the Novated Lease feel's like the better choice when It's laid out like this! Let me know if I'm being naive and I'll happily accept it haha.

      • Hardlyworkin on 15/05/2019 - 20:17
        +6

        Chances are your first car isn't going to look like a new car for long. Take it from those of us here that have learned our lesson. Buy a car you can afford to damage, wait a year to get your new car if it's that important to you.

        • Apple96 on 16/05/2019 - 11:11

          You should do this, but for a car, you should be looking at safety. ANCAP and Used Car Safety ratings.

        • gk0r on 18/05/2019 - 12:18

          You know this is not carmageddon right?

      • Bid Sniper on 15/05/2019 - 20:48
        +11

        o.O wow that’s insane money where do they get those numbers from?!

        I always paid in cash from money I save, so will not be crippled financially later on. That’s a huge amount of money. When things are “bundled” together, it’s a slight of hand to hide the cost, “don’t worry about that stupidly large numbers, trust me its cheaper”. yeah no

        OK what car are you looking at? Here are some used but ex fleet cars with under 40,000km but recent cars, so already 50% off or more.

        https://www.pickles.com.au/cars/fixed-price#!/search-result?q=(And.FixedPriceFlag.True..ProductType.Vehicles..FixedPrice.range(1..25000)._.Kilometres.range(0..40000).)

        Lets pick one, understanding this is your first car, you will smash it and insurance will be expensive since you’re young, cheaper car is better at this stage, upgrade later if you want. Will this car live on the street? will this car be parked in the Sun all day(?) If so go this, (yes I know its boring but this is your first car and will get damaged outside, get something cooler later).

        Cheap reliable car, parts are cheap as well as servicing, cheap to run, 2017 Hyundai Accent, with under 40,000km ex fleet, so full service history, still 3 years of warranty. That what get most Euro cars new, $11.6k
        https://www.pickles.com.au/cars/item/-/details/CP-02-17--Bui…

        -3 years of warranty left, so flick road side assist. Tow truck is $200 if ever needed. Reason why NRMA now sells pet insurance, cars are far more reliable now. Japanese and Korean especially.
        -Cheaper rates for servicing compared to dealership full RRP rates, how much. Go local mechanic, half the price.
        -Tyres source yourself, much cheaper to go to discount tyre store or buy online. Tyres will probably last four years at least, so this is a non-issue too.

        So Running costs.
        -Fuel- depends on how much you drive, constant for both finance options.
        -Rego $600 pa
        -Insurance $1k pa
        -Servicing $300pa

        So totally for four years is
        $11.6 (car) + (insurance) $4k + rego ($2.4K) + (servicing) $1.2k = $15.2K + fuel

        Leaving $23K in savings (minus your fuel bill, eg $1-2k pa) that you put into some investment for your future along with still having a good reliable car that you actually own. Even it rotting in the bank at 3% after 4 years give you about $27K with a car you own. Also keep in mind by doing research you can save more on each item listed above increasing your savings.

        Can change the car to whatever you want but you can see the logic here. When it come to a home loan, you will have large deposit even if you don’t invest wisely. In terms of credit score, a large savings is a better indicator than keeping your head just above water with debt. Also mean less debt when it comes to a home loan because you are borrowing less due to fact you have a bigger deposit.

        • fatal on 16/05/2019 - 11:09

          No sure a 25k lease or loan is going to leave you "crippled" for later.

          • Bid Sniper on 16/05/2019 - 11:56
            +3

            @fatal: OP works entry level job, do you think he's permanent? Leases are very hard and expensive to break, lose a job he's stuffed.

      • Black Brown Blue on 16/05/2019 - 11:42

        You should just pay 25k cash. 38k and 44k is way higher amount that 25k. I would just buy few years older car for half the amount 10-15k with cash. Running costs are too high, for a cheaper car you only need third party.

        • bmerigan on 17/05/2019 - 21:33

          "Only need 3rd party" is such a load of BS. Not many people can afford to replace their car.

          • Black Brown Blue on 18/05/2019 - 08:37

            @bmerigan: It depends on price of car. If it is a cheap car than not worth it. I bought my car for 6k and paying 300 per year as third party. If I have comprehensive, in a few years I will have paid the price of the car. I would rather replace the car.

      • toomuchdogfur on 16/05/2019 - 16:51

        Running costs are more likely to be $500 per month ($6k/year = $24k/4 years) but it depends on the car. Mine came to $525/month for a $27k used car at 8,000kms per year:

        • $120 in fuel (666km/month at $1.20/L, 15L/100km efficiency)
        • $100 in servicing (2 services per year at approx $600 each)
        • $190 in insurance ($2.3k a year… Comprehensive insurance ain't cheap when you're under 30)
        • $95 in rego + CTP ($1.2k a year)
        • $20 in tyres (estimating a full set of tyres every 25,000km)

        It's probably a bit difficult calculating all of that if this is your first car, but I highly doubt you'll drop under $300/month ($3.6k/year) unless you don't drive at all. Feel free to share some details of the car you're looking at and I'll try to hone the numbers in a bit.

        Also as a sanity check, look through the lease agreement the company gave you and check if your expense estimates match what they've put in - any company worth their salt should be itemising how much they're budgeting for your car's fuel/maintenance/etc.

        That quote they gave sounds a bit too low IMO… I'm wary they haven't budgeted enough money in for your car expenses. Keep in mind that the expenses are not free, they're included - you still pay for them (from before-tax income), but if your expenses somehow exceed what they budgeted for, you'll have to pay for the additional expenses!

        • bmerigan on 17/05/2019 - 21:34
          +1

          Jeebus, is that really what your car costs you?!
          That's thousands more than mine.

          • toomuchdogfur on 20/05/2019 - 12:16

            @bmerigan: Yup. What really bites is that three quarters of that cost (servicing, insurance & rego) has to be paid even if the car doesn't move an inch.

            • Servicing is expensive because its a modern 6-cyl car (and to be fair, I'm averaging costs over the next 5 services - they range between $350 and $1k)
            • Insurance is expensive because its Comprehensive and I don't live in a great suburb…
            • Rego + CTP is expensive because NSW ($532 for rego alone!)

            Not complaining though, I went into this purchase fully knowing what the costs would be. I used to service my car myself and get by with TPP insurance, but I don't have the time to do that nowadays (and this car isn't easy to work on - all the components are packed tightly together!)

            • bmerigan on 20/05/2019 - 19:01

              @toomuchdogfur: Hmmm modern 6 cylinder Maserati or something?
              Unless it's a brand known for expensive servicing maybe shop around. Also for the insurance.
              My modern 6 cylinder is comprehensively insured too and I'm aying 1000s less.
              Can't help you with the NSW though.

      • pav on 17/05/2019 - 19:55

        I'll had my figures too.

        Bought 4 year old car in 2007 for $14k. In 12 years I've added 220,000km to it. I've kept receipts of all servicing/repair costs which comes to $15,500. I average 10km per litre so I've used 22,000 litres of petrol (damn that's a lot), I'll guess the average fuel price at $1.35 so $29,700 on petrol. Rego and insurance about $750 p/year so $9,000 each.

        Purchase: $14,000
        Maintainence: $15,500
        Petrol: $29,700
        Rego: $9,000
        Insurance: $9,000
        Total cost= $77,200 / 12 years
        = $6,433 for 18,333km p/year

        If we subtract purchase price, running costs are $5,266 p/year (for 18,333km), or $438 p/month (for 1,527km)

        • Black Brown Blue on 18/05/2019 - 08:41

          That’s a lot more expenses than my car.

    • abuch47 on 16/05/2019 - 18:17

      Looking for clarification as Ive always stayed away from loans especially with balloon payments:

      Does the balloon payment count towards the principal or do you not pay interest on this amount? speaking generally ofc

      • toomuchdogfur on 17/05/2019 - 08:41
        +1

        The balloon payment counts towards the principal, so you do pay interest on this amount. This means overall interest paid is higher than a standard loan with equal repayments per month.

        You'd be right to stay away from balloon loans if possible - the only reason they're in this discussion is because novated leases require them due to ATO residual value requirements (no clue what this is meant to achieve though).

  • 87percent on 15/05/2019 - 08:32
    +24

    if ozbargain folklore taught me anything, you should be looking at a mercedes benz worth upwards of $100k as your "entry level car"

  • altomic on 15/05/2019 - 08:37
    +28

    Get an older car ~5 to7 years old.

    I30, kia reo, mazda 2 or 3.

    Pay cash.

    Plus, if you buy a new car then you would need comprehensive insurance which is another $$$. Where as inexpensuve car = 3rd party Imsurance = inexpensive insurance

    You're 23 in an entry level job. Dont burden yourself with unnecessary debt and expenses to chase "credit rating".

    Get a credit card and use that for every purchase and pay off before the end of the month.

    • [Deactivated] on 15/05/2019 - 12:36
      +3

      inexpensuve (sic) car = 3rd party Imsurance(sic)

      No matter what you choose to buy, please get comprehensive insurance.

      • Quantumcat on 15/05/2019 - 12:54

        Not if you don't mind the risk of losing your car and comprehensive insurance would be half the value of the car anyway

        • [Deactivated] on 15/05/2019 - 13:00

          But the thought of having to deal with another party when they're at fault and getting them to pay for damages…

          • Quantumcat on 15/05/2019 - 13:06
            +2

            @[Deactivated]: Maybe the answer is to get comprehensive with a massive excess if you only plan to use it when at fault? And if you total your car through your own fault then just scrap it and move on. Hopefully that would be rather cheap

      • EFC94 on 15/05/2019 - 13:52
        +7

        Mr car is worth $4,000, comprehensive insurance for one year is around $1,000, it doesn't make financial sense for me to have comprehensive insurance.

        • filfa on 16/05/2019 - 12:27
          -6

          What kind of (profanity) up driving history do you have, unless of course it is a $4000 modified bucket of junk

          • EFC94 on 16/05/2019 - 13:30
            +9

            @filfa: I've got a perfect driving record, just on my p plates. Nice of you to make assumptions though.

            • filfa on 16/05/2019 - 15:00
              -5

              @EFC94: I drove an A45 AMG on my p plates and it only cost me $800/year, maybe shop around a bit?

              • Jaystea on 16/05/2019 - 16:08
                +2

                @filfa: So many questions:

                1. Are you allowed on p plates to drive that car?
                2. How old were you to only pay $800?
                3. Are you a man or a woman?
                • filfa on 17/05/2019 - 14:47

                  @Jaystea:

                  1. Yes, Tasmania has no restrictions
                  2. 20-23
                  3. Male
      • johnno07 on 17/05/2019 - 15:47
        +3

        No matter what you choose to buy, please get comprehensive insurance.

        Terrible advice. Only get insurance for things that would break you financially if you're uninsured. If you're driving a 20 year old $2000 car - DO NOT COMPREHENSIVELY INSURE IT. However, you ABSOLUTELY should get 3rd party property, because running into someones AMG will break you. TPP can be had on on old sh*tbox for about $20 a month.

  • voiletmay on 15/05/2019 - 08:40
    +2

    We are doing a novated lease soon (car in coming end of next week on the back of a truck, coming from Mackay, strange when you live in Brisbane).

    We have always paid cash for cars before (so therefore had cheaper cars). We are trying the novated lease for a change/something different. I really don't know if it is going to better or worse. I know we are no longer going to have to worry about paying for petrol, rego, car servicing or insurance as that is included.

    A guy at my husbands work has got two novated leases going (both on secondhand cars, so is not paying a lot) and was telling him about it, so we thought we would try it out.

    Goodluck with your decision. I think that at 23, it might be a bit too early to do something like that, but I am not an expert.

    I really don't know if "increasing your credit score" is something you need to worry about. Hopefully others will give you some advice on that.

    • oscargamer on 15/05/2019 - 08:59
      +8

      " I really don't know if it is going to better or worse. "

      OK.

    • Duram on 15/05/2019 - 09:02
      +9

      You pay for the petrol, rego, car servicing and insurance it's just hidden.

    • ShortyX on 15/05/2019 - 09:58
      +2

      You should pay cash if you can and keep the car for about 10 years if possible. With a lease, you're paying for inflated pricing on interest and insurance when you could probably source better deals yourself (usually taking into consideration the before tax savings). Plus, you need to either pay out the car at the end of the lease or try to sell it.

    • rover on 15/05/2019 - 14:11

      Can be a smart move leasing a used car that holds it value, as the depreciation being financed can be quite low.

  • DJR9000 on 15/05/2019 - 09:41
    +3

    NL seemed like a good idea at the time, but after having done it, it was a major pain in the behind. Probably as between my employer and the leasing company they managed to stuff up the financing which left me an extra $4k or $5k out of pocket in the first financial year that then I had to stump up the money for. Mind you that won't happen to everyone but make 100% sure they are doing the salary part right.

    In the end I was just glad that they let us hand the keys back rather than pay out the $16k residual + GST. Remember you dont pay GST on everything but at the end you need to pay the GST on the residual if buying out or refinancing.

    The nicest feature of it was anything I bought for the car outside of the normal fleet card I just expensed back and had it repaid. Headlight globes, maintenance parts, tyres, that kind of thing.

    edit: If i did it all again especially at your age I'd just go buy a second hand, less than 10 year old car suiting your budget, the more cash you can pay the better, and pay money for a mechanical inspection or take a mate who knows cars well to look over it. If you don't have enough cash just put the rest on an unsecured loan and pay as much of it off as you can quickly to decrease the interest payments, and watch out for early exit fees if you manage to pay it down fast. Sometimes better to just hold the account open till the exit fees disappear e.g. keep balance at $1 or $5 dollars until 12 or 24 months expires.

    • Retailer123 on 15/05/2019 - 19:34

      Oh man that really sucks! Thanks for the advice as well. The thing is, I love to buy things outright, and basically everything I've owned is outright! But eventually I'd have to buy a house, I'm not sure if I'm being misinformed, but I've been told it can be hard to get approved for a house loan without a good credit rating. Even if I did take out the loan, I'd probably make sure I'd pay it off as soon as possible.

      I did a bit of number crunching in an earlier reply, would you mind checking that out and seeing if I've missed anything when calculating that?

      • Drow on 16/05/2019 - 12:13
        +3

        The best credit rating is to have never needed a loan.

      • MetaphorOZB on 16/05/2019 - 16:35
        +2

        The whole getting into debt to help with your credit score is not relevant in Australia - it is a US thing.

        Our banks care more about income, savings and living within your means.

      • Gowrie29 on 16/05/2019 - 18:28

        You have been straight up given pretty shit advice on that one. A bank would rather see you save 15k and buy a car outright than see you have a novated lease on your hands for the next couple of years.

        Balloon Payment. Don't do it.

        10-15k car and 5k on travel

      • miwahni on 16/05/2019 - 22:46

        Bear in mind that if you still have the lease when you're ready to buy a house, it will be counted as a liability and will reduce the amount you can afford to borrow for your house.

  • [Deactivated] on 15/05/2019 - 09:50
    +2

    Don’t waste your time on a lease unless you’re in a top tax bracket and can write off a lot on your tax return to put you into a lower bracket.
    Just buy a older car on cash

    • mskeggs on 15/05/2019 - 11:21

      Why would getting your taxable income into a lower bracket be the goal? You would make the highest tax saving if you earn enough to remain in the top bracket even after all the expenses.
      The tax bracket only applies to the fraction of tax above each threshold.

      • trapper on 16/05/2019 - 11:59

        It's not the 'goal' but reducing your taxable income give you more benefit the higher tax bracket that income came from.

        ie, at 45% you can spend $10,000 on 'expenses' but your actual paycheck only drops by $5500, so $4500 was free

  • toomuchdogfur on 15/05/2019 - 09:54
    +3

    Do Novated Leases count towards my Credit Score rating?

    Yes, they show up on your credit report as the underlying finance component is actually just a standard car loan with a balloon payment (usually about 50% of the car value paid over 1 to 5 years + the remaining 50% paid at the end of the loan).

    Anyone made the decision between taking out a loan / doing a salary sacrifice for a car purchase who could provide some input on what's the better choice?

    I crunched the numbers for my situation and found that Novated Leasing was noticeably better than taking a loan (and even slightly better than cash) however this is highly dependent on your situation.

    In my case, the finance component in the Novated Lease was a ripoff (think it came to ~14% interest PA vs 7% on a standard car loan), but the ability to pay insurance and running expenses sans-GST and from pre-tax dollars yielded greater savings (effectively saving me 10% GST and 37% income tax on these expenses).

    I would advise that you crunch the numbers yourself as again, your mileage may vary.

    • Calculate what your rough yearly kilometres and corresponding expenses for your car would be (maintenance, fuel, insurance, tires, etc) over the life of your intended loan/lease - add that to your car's price for your total cost in cash

    • Calculate how much your car loan would cost you, and add that to your previously calculated expenses to get your total cost for finance

    • Get a quote from your Novated Lease provider for your rough yearly kilometres - add up the cost to you over the Lease life + residual/balloon payment for your total cost via a Novated Lease

    • Retailer123 on 15/05/2019 - 19:45

      Thanks for this, appreciate it! I made a comment on a earlier thread hopefully covering most of this information. Would you mind checking that out and telling me if I've missed out on anything? :)

  • djkelly69 on 15/05/2019 - 09:55
    +2

    Why do you want to 'increase your credit score'?

    • Retailer123 on 15/05/2019 - 19:03

      Well I figured if I wanted to take out a loan for a house deposit, something like that would be beneficial.

      • djkelly69 on 15/05/2019 - 19:06
        +1

        Do you mean a loan (ie. mortgage) to buy a house, or actually taking out a loan for a house deposit? Regardless, banks generally do not look at credit scores to make their decision.

        They may look at the number of credit enquiries, etc, on your credit file, but having nothing on there is better than having something on there.

      • arsey on 16/05/2019 - 11:44
        +1

        The more credit you have the less banks will be willing to loan you (inc. credit cards)

        It's unlikely you'll get rejected for having an empty credit file. I wouldn't worry about that.

      • gromit on 16/05/2019 - 16:01

        The US uses the credit score. while many of the websites try to sell you on the credit score here it isn't actually used here. They will look at what you owe, your payment history and credit enquiries. Just get a credit card and consistently pay it off every month and don't rack up debt and you will be fine when it comes time to buy a house.

  • miller0 on 15/05/2019 - 10:20
    +5

    I've had one novated lease in my lifetime, and I will only ever have one… For the first 6 months it was kinda cool to drive around pretending you're not paying for the fuel or servicing, after that, the realism hit.

    You rent the car at an inflated price, and at the end of the term, you're expected to either buy it out (residual amount), or sell it to break even. Then the leasing company takes the car (after you've pretty well paid it off in full), and they sell it at an auction.

    The idea just doesn't make sense to me from a financial point of view.

    People who say "you dont pay for fuel" are kidding themselves. You pay an absolute premium, and most importantly, it is not even your car. You'll never own it unless you see the term out, and then pay the residual amount off at the end.

    • Bargain80 on 15/05/2019 - 11:13

      you forget that you pay reduced tax and you can sell the car more than the residual value (if you choose the right car)

      • miller0 on 15/05/2019 - 11:16

        You may reduced tax if you were in a higher bracket, otherwise you simply just take less money home each fortnight.

        • Bargain80 on 15/05/2019 - 13:02
          +4

          obviously.
          novated lease is not for everybody.
          do the numbers or go to an accountant.
          some people can get benefit from it, others don't.

      • Some Guy on 17/05/2019 - 09:00
        +1

        You can also pay reduced tax by investing in real estate, shares or your super, all of which, insha allah, will appreciate over time. A car most definitely will not.

        The internet is awash with stories of selling the car at a profit at the end of the lease. Just the same as the race track is awash with punters and their stories of their wins.

        • Bargain80 on 17/05/2019 - 10:40

          it's just a different option.
          if you don't get benefit from novated lease then don't do it.
          All that you mentioned, including this novated lease have their own risk.

          just because you read it from internet, doesn't mean it's not true.
          I had a a lease once and at the end, I sold it for $17K and only paid $10K for the balloon paymwent.
          Could have got 1-2K more if I sold it privately.

          • Some Guy on 20/05/2019 - 11:56

            @Bargain80: Doing a novated lease would be the worst way to obtain a tax refund, which is how the finance companies show that you'll be better off.

            It's great that you're confident in the veracity of anonymous internet posts but I personally know two people who lost money because the car's value was less than the balloon. In one case, mate was forced to cough up $8k on a BMW X5. Selling it above the residual is not a fait accompli. Everyone would do if it were.

            • Bargain80 on 20/05/2019 - 14:30

              @Some Guy: of course you shouldn't use novated lease on high yield investment such as BMW car.

    • Poor Ass on 16/05/2019 - 19:36

      Sucks when the NL provider doesn't explain things.

      But then again you didn't ask the questions.

      It's not really a lease it should be renamed 'partially salary sacrifable hire purchase with operating expenses'

  • Peanut money on 15/05/2019 - 11:10
    +4

    Please don’t forget about the nano paint protection while you’re at it 😉

    On a more serious note - unless you need a m/v to generate income or have high amount of assets tied up then you shouldn’t take out any lease/loans

    • Gaz1 on 16/05/2019 - 15:00

      Some time back I heard the comment that you shouldn't take out a loan on a depreciating asset.
      Of course this is in an ideal world & not always feasible!

  • chumlee on 15/05/2019 - 11:20

    Taking out a loan will lower your credit score

    Huge myth that taking out a loan helps your credit file

    • fatal on 16/05/2019 - 11:12

      It helps in the positive credit score system like the US.

      Just not here.

    • Cyphar on 16/05/2019 - 13:57

      Huge myth that taking out a loan helps your credit file

      Australia operates on a negative credit file. The US, a positive action file. I cannot understand how anybody who has ever seen their credit file can still be so fooled into thinking we have the latter.

  • Klevakiwi on 15/05/2019 - 11:49
    +5

    Some points to consider with a novated lease.
    You have no equity in the car, as you pay no up front deposit, so you are welded to it for the term of the loan.almost impossible to get out of early without it costing you a fortune.
    At your age your circumstances could change re overseas travel work, opportunities, marriage, kids etc, and you will have this car like a noose around your neck.
    Whilst it may be called a Novated Lease, in simple terms it is a loan with a balloon payment at the end. When the day of reckoning comes you will have to hope that you can trade out of it, or you will have to refinance the balloon.
    The balloon does not decrease so you are paying interest on the balloon for the full term of the loan.
    You stand a good chance of being upside down at the end of the lease ( negative equity ).
    In case you haven’t caught my drift yet, this is not a good idea for you.
    I now live the dream on the Sunshine Coast, having been a General Sales Manager in large Metro Dealerships in Sydney , and came into contact on a daily basis with young professionals who had got themselves in hopeless situations with cars they could not get out of without writing out a big check to clear the negative equity, or worse they trade it on something which has a big enough margin to cover the pay out, and just creat a much bigger problem further down the track.
    Whilst there are those earning big 6 figure incomes who will just shrug there shoulders if they are upside down and reach for a card or finance the neg, this is not you.
    If you have to finance, Either take out HP or CHP loan .

    • Retailer123 on 15/05/2019 - 19:38

      Wow, thanks for the advice. Definitely reconsidering this now. The thing is, my mum's car at the moment is shitting itself and we needed a new car. I thought it'd be a nice gesture to buy a car for both her and me. Unfortunately, I wouldn't even be driving much as a work in the city. I'd only take it out on weekends / after work if anything needed to be done.

      I'm working for a IT Service Provider at the moment, so the possibility of me moving overseas / interstate is very high depending on the Client I get assigned to.

  • dylanando on 15/05/2019 - 12:53
    +2

    I was a douche and bought a new $40k car in my late teens and now completely regretting it. Big payments for something I could’ve gotten so much cheaper. Pay cash

    • Retailer123 on 15/05/2019 - 19:39
      +1

      Haha good to self-reflect. I'll see what I can do to avoid this :)

  • Illian on 15/05/2019 - 14:47
    +2

    First car = always pay cash on a sub-10k car, if you want to increase credit score get a credit card and use it for everyday purchases like groceries etc. I'm not that much older than you, I got a credit card at 19, one small personal loan since, that's it, never missed a payment and my score just hit 800 a couple months ago.

Login or Join to leave a comment
Login Join