Novated Lease - Is It a Better Deal?

I am planning to get a car on novated lease for 2 years. Leasing provider has sent me a quote for $730.13 fortnightly payment.
Cost of car is $43,470. Residual value after 2 yrs is $26.203.20 which includes GST $2,382.11

I am not sure if this deal is good or i would be better off by getting additional loan from my home loan whose interest rate is only 3.42% atm.
Income is $80k a year.

https://files.ozbargain.com.au/upload/191023/74350/quote.jpg

https://files.ozbargain.com.au/upload/191023/74381/novated_l...

UPDATE: Finance has been approved. I am now waiting on the car price and the updated quote with only fuel expenses. Once, I receive that i will have clear picture of how much i need to spend fortnight and all.
Will update you all.

UPDATE 2: Enquired with bank to get additional loan and i was told that i might have to pay extra $1,000 LMI if i want to top up my loan with extra 40K as loan to asset ratio will be more than 80%. Currently it is at 87%.
More Dilemma on making decision.

UPDATE 3: I am not going with novated lease anymore nor i am buying a car. Instead, I am looking to buy a motor bike now.

Thank you

Comments

        • +1 vote

          32% off 7.37% is still 5%… more than your 3.42% home Loan.

          You have to factor in the GST exempt fuel, servicing, tyres, spares, insurance

          •  

            @brad1-8tsi: It's not that much of a saving. The house always wins.

      • +17 votes

        You don't get back 100% of the income tax normally payable. From memory you'll also need to pay FBT. Talk to your accountant and get them to do the exact sums for you.
        Fwiw when I had a novated lease (a long time ago) I was only better off by a few hundred dollars overall. Also the lease terms are more restrictive and complex than a regular loan
        As multiple people have mentioned the car you are buying is too expensive for your income, and the novated lease will have marginal benefits for you at best.
        It seems like your mind is made up though as you seem to disagree with every reply on here so go ahead and buy the car

        • +3 votes

          Reverse psychology, good thinking!

  • +1 vote
    1. Do you need a car or want a car?
    •  

      Need.

      • +1 vote

        What do you need your car to do for you? (I'm going to get to the point that a) you shouldn't waste such a large %age of your pay on a new car and b) get a car that suits your needs, not your eye)

        What car is the one you are looking at? (I see Subaru. Which one?)

        • -5 votes

          Does it effect which car am I getting ? Discounted cost is 43k.

          • +11 votes

            @Mentallysick: I'm trying to help you get a car that does what you want, for less than $43k. If you don't want that help, that's just fine.

            • -6 votes

              @oscargamer: for work

              • +10 votes

                @Mentallysick: If you are going to give 2 word answers that lack detail then you won't get good advice. GIGO

                Or have you made your mind up on the vehicle and can't be swayed?

                • -4 votes

                  @brad1-8tsi: yes pretty much i think i have made up my mind and have done calculation so far and i am getting that i save 5K over 2 years period. Hence, I am sticking into getting a car but will not take up any of their insurances and get my own CTP,Rego and insurances and claim back from them. The only thing i will get from them is fuel expenses.

                  • +6 votes

                    @Mentallysick: Your mind seems to be made up.
                    Your numbers however are wrong.

                    If you think not, please post your calcs and I sure certain we will discover an oversight.
                    The NL agent / website must have misled you in some way.

                  •  

                    @Mentallysick: Please, please make sure you get TPP as well as CTP if not full comprehensive/fire & theft as well. Remember that CTP insurance will only cover third party personal injury claims (i.e. someone got hurt) and that you need TPP for third party property damage (you hit someone's nice ferrari)

                  • +9 votes

                    @Mentallysick: Then why are you on here trying to get strangers to justify your decision.

                    Not only that but also arguing with them when they tell you things you don't want to hear.

                    If you've made up your mind then do it, and own the decision.

                  • +2 votes

                    @Mentallysick: Hi Shelby. I took up a 2 year novated lease 1.5 years ago and I just recently terminated my contract with the leasing company (but still continue the leasing from St George). It was a 5 years old car at $16k and balloon payment of 6k, used primary for work. I know that you cannot compare apple to apple between my situation and yours (I earn around 80k as well) as both our living expenses are different. But one thing I wish I had done, is to ask this forum and have all these amazing ozbargain community back then to tell me that I am making a big mistake then. On the hindsight, it was not wise to do novated leasing in my case. Hope that helps

  • +3 votes

    Ignore all their costs, and work out your own down to the $. And compare at the end.

    I did one over 3 years which I found was the sweet spot for value/residual etc. 2 years didn't work out great factoring it all in.

    However my circumstances changed, I left my old job and now pay without any tax benefit (1 payment left! Yay).

    I'd say don't do it ;)

    • +1 vote

      it's barely worth it with the tax break.
      it's surely not worth the risk

  • +1 vote

    That looks like Smartsalary. It will be cheaper to purchase via an additional loan using home loan rates on fixed term.

    What type of car?

    •  

      Yes it is Subaru

      •  

        Why have you edited this response? You responded with a Mazda previously.

        Anyway, what term will you put the residual on? And if you weren't going to lease it, what term would you put the loan on?

        Do a side by side comparison and see which method will cost you less.

        •  

          Because i want subaru but Mrs. want Mazda but we are getting the one around 43K so doesnt really matter.

  •  

    I'm on a similar boat. only thing is I'm looking at 2 year old car ~35k, over 3 year term. I'm trying to find the sweet spot repayment vs tax benefit. 20% is for work. my calculation says uber and pub transport is about 1/3 of lease….

    •  

      what have you decided n what you mean trying to find sweet spot ? Did you mean you are trying to find how much you can afford as in fortnightly repayments?

      •  

        Tax benefit, repayment is not a problem for 35k over 3 years tbh…

      •  

        Got a sit-down with finance company tomorrow and I'm going to check with my CPA friend over the weekend.

        •  

          I am planning to bear all costs like insurance, CTP,Rego, Services myself and put a claim through later as it is super easy to make a claim through your online login . I am getting only fuel from them.

  • +3 votes

    From my experience, I wouldn't probably go with a novated lease ever again. Those savings they quoted barely makes any difference in your actual savings.

    •  

      when I did my calc, novated lease at least save 5000 for me over 2 years period.

      • +8 votes

        I think you've over estimated your running costs and assumed that you'll get them refunded if you don't spend them. You're probably also assuming that it will cost you the full price to purchase without the lease, when without it you can usually negotiate cheaper up front, eg, you can probably just pay $5k less for the car without the lease.

        Keep in mind if you buy a car that's a couple of years older you can probably save another $10-15k on top of that.

        The reality is that the novated lease company makes money, and they make it off charging you more than it would cost to arrange finance separately.

  • +2 votes

    I have done few leases and it all depends upon the car, residual value and how long you intend to keep it.

    My recent one was financed at 5.1%.
    You could remove component of lease you don't need and also pay for all running expenses and claim them back.

    A comprehensive insurance was quoted by the lease at @2200 but I got it done for $1200 and claimed it back.

    • -1 vote

      That is cheap. mine is 7.37%

      • +6 votes

        then that should be a red flag for you.

        BTW, the $43k is that via the lease company or did u negotiate that? When i did mine my negotiations were $3000 (9%) cheaper than the lease company.

  • +2 votes

    Biggest savings are

    Paying GST on residual only - but with 2 year term this won’t be much of a saving
    Some of the lease payment coming out of pre tax income
    GST free running costs
    In some cases easier to negotiate a better purchase price

    But from having done a couple I wouldn’t do it again because
    Costs - interest, monthly admin, insurance, tacked on extras are usually not made easy to read or understand
    Admin - purchase and payout are fiddly compared to paying cash
    You can always negotiate as good a deal as what you can get via lease company anyway just get onto whirlpool for an idea of what ppl are paying
    Relatively high interest
    Useless extras you need to opt out of - wheel insurance that doesn’t cover tyre damage in my last one was first off the list

    It’s usually better to have a good handle on exactly how much your car costs to own and novated leases make that a bit difficult (not impossible) to do.

  • +4 votes

    Novated leases are good if you have a reasonably high income and you simply will not buy anything other than a new car anyway.

    Given your income is $80k, I question why you would want to hold to the latter criterion.

    Located leases are by design shockingly obtuse. It's very difficult to unpick them and the real financial picture.

    • +4 votes

      This. It all looks good up front, but smoke and mirrors apply. Novated lease co is out to make money, it has to come from you.

      Leasing a vehicle is best for a person who is regularly updating, going from new car to new car when the lease is up and those with a high disposable income.

      THey are also inflexible which makes it more difficult if your situation changes. Ie baby comes early or you want to change your career.

  • +1 vote

    Not worth it unless you are getting paid a car allowance, have a fuel card and are using the car for work related expenses you are just taking out a very expensive lease. Novated leases also do not account for depreciation very well and the interest rate is high. Why not just get a normal car loan?

  • +1 vote

    I'm on novated lease. It costs more than buying with cash because of lease fees. The reason I'm on it is to improve cash flow and maximise other tax rebates (e.g. health insurance rebate). The figures on the upper right of your quote are just budget. I pick my own insurance and road side assistance, as my default quote has less coverage (remember they take commission).

    •  

      yes i am planning to do the same. The only thing i want from them is the fuel and i will claim the other expenses.
      one question is when i put a claim later, will they reimburse me from pre taxed or post?

      •  

        Mostly pre tax, like salary sacrificing.

        You spend $110 with GST in cash (say with your Amex, or woolies GC), your leasing company will reimburse you all $110. In the back end, it will deduct $100 (because you don't pay GST). That $100 is taking from your weekly contribution.

        Your weekly contribution has taxed component (show up as ECM stuff)

        Same with comprehensive insurance, rego, CTP, servicing, roadside etc.

      •  

        With your second attachment, consider FBT implication. Basically you ask the leasing company to take too much pre tax money. The unused component is subject to tax. I don't know how they calculate.

        In fact, for direct comparison, adjust your budget to meet your actual cost pre GST. I see your right hand column has say $600 for insurance but budgeted $1000+. That's not saving.

  • +3 votes

    Income is $80k a year.

    Cost of car is $43,470

    And you have a mortgage. Let's see…

    Computer says 'no'.

    Why not buy something within your means now and re-evaluate your finiancial situation in a couple of years ?

  • +2 votes

    Maybe you should first have a read at "The Barefoot Investor". Please listen to other people advice.

    • +3 votes

      Don’t be silly. OP is obviously a high powered executive with high disposable income and a desire for fancy new cars. Why would he need advice on saving money?

  • +1 vote

    I've looked at this a number of times, including studying it as part of doing financial planning qualifications. I've yet to be convinced its worthwhile.

    I have heard stories of people selling the cars for a higher sum than the buyout amount after 3 years and making a profit that way. That's a fairly big gamble though and if anything happens to the car (often beyond your control) it won't work out.

    From what I can see the savings at best are marginal. You have no choice over your insurer or fuel provider etc and are locked into the arrangement.

    Near where I live there are 3 servos basically right next to each other. Two have similar pricing while the 3rd (BP) is often a good 20c or so a litre higher than the other two. How on earth could this one survive when much cheaper options are right next to it? Because I assume they have fleet and novated lease type contracts forcing people to use them and therefore can price gouge. Why else would anyone but the most stupid person not just use one of the other two?

    To me, it appears to be a waste of time that will provide no significant financial advantage while complicating your personal and tax affairs. But if someone can tell me why I'm wrong I'm all ears.

    • +3 votes

      My leasing company offers Caltex, Shell and BP fuel cards. Alternatively, you can use your own payment source and get refunded.

      My understanding is some people even pay via discounted gift cards for further savings.

      • +1 vote

        Fair enough but my guess is that a large amount of people just go to the nominated company.

    • +3 votes

      You are provided fuel cards but you are free to utilise any servo, just get a receipt and claim it back.

      Same for insurance - for my lease the quote was about $2,200, did it on my own for $1,000 and just submitted the claim.

      •  

        yes that is my plan as well. I am intending to get only the fuel card all other running cost, i will find my own and put a claim through.

        • +2 votes

          Sounds like a pain in the bum. If you are still going to do all the work why not just buy the car yourself. On of the big advantages of a lease is being able to take t to a service and not worryig about having to pay.

  •  

    Novated lease is just another term for renting a car. Do you want to rent or own a car?

    Have a look at used market, I was able to get a ex demo 5000km Subaru WRX STI premium for less than the car in your post for example.

    What car are you looking at? You said Subaru ok cool but can get fleet Subarus for half that that are 1 to 2 years old and in excellent condition with warrenty.

    • -1 vote

      who says that? if you pay the balloon ammt, the car is yours.

      • +12 votes

        You are renting the car for 2 years, after which you are buying a 2-year-old used car at a non-negotiable price. What a deal!

      • +4 votes

        do you know what that figure is? I'm guessing around $30K, do you have $30k laying about? Most people dont so they enter another lease, so a lease = renting.

  • +5 votes

    I did a novated lease on a 35K car with a 80k salary.

    Wouldn’t do it again, interest is calculated at inception of the loan ~6% and you cant put extra payments into the loan while you have the car.

    They then bank on you re novating the vehicle with the balloon amount, making it ~12%

    Sure the pre tax savings is nice but not worth the hassle.

    •  

      i am not planning to renovate the lease. I will pay them the residual with withdrawing my home loan.

      • +1 vote

        Sounds like you’ve already got your mind made up.. Have you got approval to redraw such a big amount (if thats a thing).

        I’d advise against it and buy a trusty camry.

        •  

          I have corolla atm. We need second car as i started second job and we dont live close to train station.

        • -1 vote

          I have not got approval to withdraw but i believe we will be approved.

          • +16 votes

            @Mentallysick: I've read most of the stuff in this thread. This is a massive red flag! You don't actually have the balloon payment sitting in a redraw or offset account already? You are taking a huge risk on a number of things. Like what if the housing market slides or you lose your job or injure yourself and cant work? Or how about go forbid the baby or mum has some complications and you NEED money to cover unforeseen expenses? What about when your Mrs goes on maternity leave and for some reason or cant work after baby then you need to come up with the balloon payment and convince your bank that you are good for borrowing with one income a mortgage AND a dependent. Also be aware that having a child reduces what you can borrow against your home. LISTEN TO EVERYONE HERE.

          • +1 vote

            @Mentallysick: I'm with gumbo45c. I don't align with the "it's not worthwhile in any situation" crowd but if it's reliant on something you believe will happen assuming no complications then it's a terrible, terrible idea.

      •  

        Unless you can't redraw at that time for any number of reasons out of your control, some examples off the top of my head:

        • Bad market position (drop in house prices due to market correction or lower borrowing power after another GFC)
        • Change to your employment situation
        • Additional regulation on the banking sector which restricts their ability to give more credit to high risk borrowers who may not be able to service the loan (e.g. someone on an 80k income trying to pay off a home and borrow an extra 30k for a depreciating asset)
  • +12 votes

    A $43k car on $80k income is a bad idea already… then you say your planing to start a family, this makes it a terrible idea.

    Even if you 'plan to keep it for 10 years', why not just buy one 2 years older for half the price and keep it for 8 years.

    • +1 vote

      i dont think that 2 years old car will be half price. If it is, I am happy to buy from you.

      https://www.carsales.com.au/cars/2017/subaru/xv/?sort=Price
      https://www.carsales.com.au/cars/2017/mazda/cx5/gt-badge/?so...

      • +3 votes

        Please don't look at an XV when you're about to have a kid.

        Hell even the CX5 isn't amazing for space

        •  

          OP would probably be better off buying a Camry.

        •  

          so which on ?

          • +12 votes

            @Mentallysick: Given your lack of taking advice for the lease, and your budget, I'm not even going to suggest a car!

            • -13 votes

              @spackbace: ok CX then.

              You prove me why it is a bad idea. Be able to prove it. Dont think about future and make a decision. noone knows what happens in future. You might win a lottery as well. Everyone is more worried about future. I am looking at my present and had done calculations and i save $1,200 roughly. So can you prove why it is not a better deal ?

              •  

                @Mentallysick: What about an Outlander if you're set on a SUV?

              • +5 votes

                @Mentallysick: Disappointing attitude to only think about the present - you should be mature enough to consider the future (especially your family's future)

      • +2 votes

        i dont think that 2 years old car will be half price.

        Well go 3+ years older lol, it's not rocket science

        •  

          Shhh, don't say that! You'll have him trying to set up a novated lease on Elon's next SpaceX.

  • +3 votes

    My car cost $155 per fortnight, that’s everything, fuel, insurance, registration, servicing and depreciation. $730 per fortnight is insane on 80k a year.

    •  

      I was quoted about $550 per fortnight for a golf r. Even with minimal living expenses, I found that tough to commit to.

  •  

    It is almost never worth it - so im going to say no it wouldnt be a better deal

    42k for a car isnt too bad depending on what it is if you are looking at having children an good mid-or-large SUV will probably set you back around that much these days.

  •  

    Sigh.

    You can bring a horse to water but you cannot force it to drink.

    One thing to bear in mind which I was told by an rep from a novated firm, if I

    Lose my job for whatever reason, Get injured and go onto work cover or have to use income protection

    The company will still want their monthly repayments (Of course that is the agreement) or can see fit to terminate the agreement and have the entire loan paid out. Sometimes it's in the fine print and buried. Not sure how true though if people are able to confirm/deny will greatly appreciate.

  •  

    What most people are hinting but not saying is your 43k:80k ratio is way off. You'd be best to stay below 30% ($24k).

    This might be worth reading: https://www.finder.com.au/new-car-spend

  •  

    I really appreciate everyones opinion.
    please check the calculation i have done.

    https://files.ozbargain.com.au/upload/191023/74381/novated_l...

    Thank you

    •  

      So they can get $43,470 for the car, but you can only get $47,990? There's $4,520 of your $5832 savings right there! Have you tried negotiating?!

      Are you sure the $43,470 is inc GST? Otherwise it would be $47,817 for the car…

      • +1 vote

        Agreed… these calcs don't look right.

        • -2 votes

          what made you think so. Probably you are one of those who hasnt even open the pdf and started commenting.

          • +1 vote

            @Mentallysick: As mentioned below, the FBT base value excludes rego, CTP and stamp duty.

            That aside (even if you pay cash for the residual) you will still be in front if you don't lease it.

            Spreadsheet

          • +1 vote

            @Mentallysick: I see you have simply doubled some of the values if you paid for them yourself - where did you get this calculation from? Why would you only pay half of the value in the lease scenario? You aren't paying 50% tax at an 80k income. Infact you would only be paying 45% at over 180k….

            If you re-calculate these values at a 32.5% tax saving for the lease, you end up about 804 dollars worse off??

          •  

            @Mentallysick: Why is your fuel twice the price?

      •  

        this is after GST. Mine is after negotiating.

        • +14 votes

          Actually, your car purchase figures are wrong

          Check out this calculator, which clearly spells out each step.

          FBT purchase price figures don't include CTP, Stamp Duty and Registration

          So a Toyota SUV, at $43,470 plus on-roads, has a FBT base price of $44,075, but it's really $46,287 drive away

          Please, talk to someone who can walk you through the figures better. Don't just look at the magical numbers and guess