Novated Lease - Is It a Better Deal?

Mentallysick on 18/11/2019 - 15:09
Last edited 30/11/2019 - 10:24

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

Automotive

Comments

    • Bid Sniper on 19/11/2019 - 14:06

      /spits drink

      $60-65k for a car that can be bought cash for $27k 1 year old with factory warranty.

      o.0

      • ShortyX on 19/11/2019 - 14:13

        Running costs are included.

        • Bid Sniper on 19/11/2019 - 14:17

          those numbers are way off

          • ShortyX on 19/11/2019 - 14:20
            +1

            @Bid Sniper:

            those numbers are way off

            They do have the 'leasing company margin' on them. :)

            • Mentallysick on 19/11/2019 - 14:27

              @ShortyX: and i will pay my own running cost. I will have the final quote soon after removing all the costs. I will post here again once received.

              • ShortyX on 19/11/2019 - 14:34

                @Mentallysick: As mentioned earlier, any tax saving that you think you are getting with the lease shouldn't be a consideration since the lease will effectively cost you more compared to financing at home loan rates (compared to 7-8% using finance as part of the lease). Does that make sense?

                • Mentallysick on 19/11/2019 - 14:52

                  @ShortyX: Sorry i didnot understand what you mean.

                  • ShortyX on 19/11/2019 - 14:54
                    +2

                    @Mentallysick: Even though you get a tax saving and saving on GST with the lease, financing the car yourself at home loan rates will be cheaper overall than the lease option.

                    Any so called 'savings' you think you are getting with the lease aren't really savings and the lease will actually end up costing you more overall. Don't let the "tax and GST savings" line fool you.

                    Does that make sense?

                    • Mentallysick on 20/11/2019 - 08:45
                      +2

                      @ShortyX: yes Thank you
                      So I am better off to get extra loan on mortgages now and buy a car.

                      Thansks

                      • ShortyX on 20/11/2019 - 09:53
                        +2

                        @Mentallysick: 👍🏻 I think you should look at a second hand (2-3 years old) Outlander for $15-$20k.

  • dojomojo on 19/11/2019 - 12:48

    Sounds like OP already made up their mind and won't be swayed.

    • Mentallysick on 19/11/2019 - 12:52
      -4

      because noone has been able to prove why i am loosing. All they have been saying is dont get 43K car when your income is 80K.
      I have my mrs. income too. Hence, I think we can pay it off and plan to pay off balloon by getting additional loan on our property.

      • greater mimic on 19/11/2019 - 13:03

        but aren't you guys planning on having a kid soon? if your partner wants to go back to work straight away then that's fine no problem with that, but there will be still be more expenses in your household because you now have a kid such as having someone look after them

  • Dseeker on 19/11/2019 - 12:52

    Bear in mind banks behaving differently now!
    And who knows in 2 years time.
    At present and esp last 1 years its not easy to top up with you home loan.. You could be charge higher interest in some cases if they allow you to.
    In some cases you could be rejected.

    But of course if you have the $$ ready in offset account or redraw then no problem.

    • Mentallysick on 19/11/2019 - 12:54

      yes i have about 20k in offset.

      & i dont know why everyone is saying it is not good idea. BUT WHY? HOW CAN YOU ALL PROVE THAT I AM NOT SAVING ON THIS DEAL?
      Though i might not be saving much but still i am better off than buying myself.

      • Dseeker on 19/11/2019 - 12:57
        +1

        I think in general people are saying not a good idea to buy a 40K+ car on your wage.

        Not so much that the novated lease is a bad idea and you could negotiate harder.

      • No ONE on 19/11/2019 - 17:25

        PROVE THAT I AM NOT SAVING

        Don't get in the novating lease saving calculator misconception.

        Do your own calculation:
        - Total cost (less tax saving) with novating lease
        - Total cost with cash purchase
        - total cost with external financing

        Choose the least total cost to make your decision. It is likely that novating lease would have no real saving.

  • netjock on 19/11/2019 - 12:53

    Just follow the money, if it isn't in your pocket then just don't even think about it.

    Thought i saw a 1.9% finance deal the other day advertised by Skoda.

    • Toons on 19/11/2019 - 13:20

      Yeah I've driven past 5 or so billboards all offering the same rate for Skoda

  • Dseeker on 19/11/2019 - 13:10

    OP a tip for you. 3.42 interest rate for Owner Occupier is ok. However u can definitely do better, even with the big 4s with offset accounts. Unless your loan is tiny.

  • Toons on 19/11/2019 - 13:19

    Everyone I know personally that has gone down this path including my parents have come out on top, In saying that they all meet the criteria to get the maximum benefit where as with no disrespect I don't think you have been through the full detail yet.

    do you have a mate who is an account who could explain it better to you?

    It only seems worth it if you are looking to buy something that would apply FBT you manage to knock a larger portion of tax off

    You need to be able to do the k's no point if all you manage is 10K a year the costs might look more attractive because the car is 10% cheaper I've also never seen anyone go for such a short duration the physical costs might have reduced because they don't need a new set of tyres etc added to the maintenance budget

    When I looked into it and did the math even buying a luxury car worked out worse because I don't clock up enough k's to make it worth while yes the tax write off is a big part of the scheme.

    The company doesn't do this for free so make sure you take the ongoing admin fees etc into account often more than a low interest rate as above Skoda @1.9% is pretty damn good for a car loan in general

    For me it just wasn't worth it unless I wanted to invest time in driving, over the years I've been given cars by friends if I was heading south to the farm so I could clock up some extra k's to help them meet the commitment

  • Diesmile on 19/11/2019 - 13:20
    +1

    I don't have any issues with your car prices. In fact, when I was at your wage bracket, I purchased a 75k car, but I don't have any other burdens on the budget.

    but my suggestion would be go through your numbers with accountant, because not being a professional in the field, you may overlook some figures.

    • Mentallysick on 19/11/2019 - 14:30
      -2

      unfortunately i dont have any accountants. i do my own tax return. and i dont want to pay tax accountants to do this calc.

      • John Kimble on 19/11/2019 - 14:47
        +1

        Even if paying them $100 to $200 saves you thousands or from making a big mistake?

  • spottydog0 on 19/11/2019 - 13:55
    +2

    At $730 a fortnight on a $80k salary that is about 30% of your after tax income and you'll still have to pay 50% of the purchase price after 2 years (if the bank will loan you the money on your mortgage at that point, especially if you have an addition to the family and probably lower income with maternity leave).

    Not really sure why you are even considering this and worrying about whether to novate or not, I'd go for a cheaper car and save your money then when you have enough in your redraw buy the dream car.

    I looked at novating a car a couple of years ago, it was a more expensive car and I pay higher tax than you but even then when I did the numbers taking the money out of my offset worked out costing less over a couple of years (and mortgage rates were higher then).

  • kolorijo on 19/11/2019 - 14:03
    +1

    Yolo. Go for it. That's what my mechanic told me when I asked should I get a Mercedes C class.

    • Bid Sniper on 19/11/2019 - 14:10

      "Gods of the moto industry"

      • ShortyX on 19/11/2019 - 14:14

        literally

  • Smulder on 19/11/2019 - 14:06
    +18

    I always read stories about people getting into huge debt and financial hardship and wonder how they can possibly let it happen. I guess now I know.

    This thread is like watching a train derailment in slow motion.

    • kolorijo on 19/11/2019 - 14:30

      We all know the outcome would be, yet we are still trying to stop it.

      Sigh Just give him the blessing that he wanted.

      • Mentallysick on 19/11/2019 - 14:32
        -1

        posting the final quote after bearing all expenses myself soon.

        Be patient guys. Trust me I will not let this train derail nad work till the last second to save this train.

        • Antikythera on 21/11/2019 - 11:02

          shovelling coal into the engine isn't going to make you take the corner more safely. consider applying the breaks perhaps.

    • bennos on 19/11/2019 - 14:31
      +2

      I know right, it is just terrible to read, and all for some POS CX5 Mazda so he can impress his friends with his flash new car.

      • Mentallysick on 19/11/2019 - 14:33
        -1

        You are getting me wrong my friend. i want to have SUV because family is growing and very hard with corolla.

        • bennos on 19/11/2019 - 14:51
          -2

          I did the same as well. I purchased a 15 year old Lexus RX330 with 100,000km on the clock for $16,000 with full Lexus service history. The car is amazing, has a silky smooth V6 and has electric everything and leather everything else. Lexus is the most reliable car brand in the world. The car would have more bells and whistles than the CX5 you are looking at. I'm just saying spend you money wisely, don't try and impress the Joneses

        • jatyap on 26/11/2019 - 19:30

          And yet… when somebody mentioned the possibility of getting a secondhand Outlander for about 1/3 the price, you ignored them… cool. Go ahead and buy the car, mate.

  • CalmLemons on 19/11/2019 - 14:34

    What's the difference between novated lease and a normal car lease?

    Have always just got business loans for cars.

    Anyone recommend a good car leasing company as don't want to be stuck with the hassle of trying to sell off the car or the dealer giving a lousy price for the car after 5 years.

    • blonky on 19/11/2019 - 17:07

      novated - lease payments come from your pre-tax income so you pay less tax, and you save on the GST as your company is paying the lease as part of your salary packaging (and the company will claim back the GST)

      it does incur FBT which needs to be factored in when working out the tax savings

  • mini2 on 19/11/2019 - 14:42
    +1

    Go and check if a novated lease have any effect on your soon-to-be-eligible Family Tax Benefits and associated payments.

  • Blitz001 on 19/11/2019 - 14:44

    A fool and their money… what I would give for a 80k job.

    • Smulder on 19/11/2019 - 14:51
      +1

      There should be more accountability on finance companies who try to sign up the financially illiterate to complicated financial products.

    • Mentallysick on 19/11/2019 - 14:57

      why you call me fool? what did i do wrong?

      • Smulder on 19/11/2019 - 15:04
        +15

        You are committing to a $26k balloon payment in 2 years, which you plan to pay by re-drawing from your home loan, at a time when you will have a new baby, increased expenses and most likely a reduced household income. You are making a horrible financial decision and do not seem to care, or else you are totally oblivious. All this to (allegedly) save a a few grand in GST and tax on a car that is excessive to your needs.

  • cashless on 19/11/2019 - 14:59

    Why would anyone want a novated lease?

    • Mentallysick on 19/11/2019 - 14:59
      -2

      becasue they can save on tax and the price is gst free.

  • John Kimble on 19/11/2019 - 15:21
    +1

    Novated Lease guy, meet catch gift cards guy https://www.ozbargain.com.au/node/497048

  • Brick Tamland on 19/11/2019 - 15:23
    +3

    These leases can work out ok but you do need to run your own calculations. If you can’t then speak with an accountant.

    I’ve done my research on this before, with a similar income and I couldn’t get the figures to work. To get it too work you need to be doing a lot of KM for work purposes and it’s more beneficial for people on higher incomes who like to upgrade cars frequently.

    Look out for low interest deals.

    • Mentallysick on 19/11/2019 - 15:25

      no low interest deals.
      interest with them 7.37%
      interest on home loan 3.42%

      • geoffs87 on 20/11/2019 - 11:14

        seems pretty simples.

        3.42% < 7.37%

        Just remember, if you put it on your home loan, and don't pay it off quickly, you'll be paying 3.42% on an increased amount for perpetuity on your home loan…

        Some maths for those playing at home:

        • Whack it on your home loan for 3.42% and make extra repayments of $789.43 per month = $47,365.99 total cost
          NB if you don't pay the required payments to clear it in 5 years, and just add it to your loan and make minimum repayments, you'll end up paying: $69,661.84 total (assuming interest rates remain flat)
        • Pay the jokers at the novated lease company 7.37% for 5 years, roughly $868.37 per month = $52,102 total cost

        I've made some assumptions for their pmt amounts, but paying 7.37% for 2 years, sees you paying ~$868.37pm for 24months, leaving a balloon of roughly $27k works out to be roughly $20,840.80 over 2 years, and then whack it on your loan for a further 3 years at 3.42% works out to be roughly $29,472.60 with a monthly repayment of $766.88, comes to a total of $50,313.40

        So, you're paying an extra ~$3,000 in interest by going with the jokers for 2 years vs putting it on your loan. There may be some tax benefits of the novated lease, but i assume you're paying more for servicing/tyres/petrol etc than if you just did it all yourself. Purely from an interest standpoint - do it yourself

        • Mentallysick on 20/11/2019 - 11:18

          I am paying for servicing / tyres.

          • geoffs87 on 20/11/2019 - 11:34

            @Mentallysick: well the above interest calculations still stand… its cheaper off the top of your loan IF you are diligent in making your extra repayments.

          • [Deactivated] on 20/11/2019 - 13:23

            @Mentallysick: You won't get any tyres from the novated lease in the first two years and you can usually get servicing for a few hundred dollars at most, that's not really a consideration.

      • brendanm on 20/11/2019 - 15:17

        Your home loan rate is even rubbish. 3.42 is pathetic at the moment.

        • Mentallysick on 20/11/2019 - 16:24

          Really?
          Other one is 3.75%. Fixed it at wrong time :(

  • wannagrababargain on 19/11/2019 - 15:43
    +1

    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.

    On the surface this sounds like a terrible idea. Loans need to be matched the length of the loan to the life of the asset. Home loans are 25-30 year loans because houses are long term asset. Your home loan (I am guessing) has 20+ years left on it. Any additional principle you add to the loan now is going to be ammortised into repayments over the remaining 20 YEARS which is far longer than the life of the car. You are going to potentially still be paying interest on this car, after it's dead and gone, 20 years from now. It is far better off to go for a shorter length loan (2-5 years) even if the interest rate is higher, you'll end up paying less interest over all. Redraw facility is better used for actual improvements to the underlying asset like house renovations. I would look beyond comparing just the interest rates.

    Also paying the lease balloon payment with your home loan is an even worse proposition, if your finances are stretched it might be worth looking at a longer lease with a balloon payment that you can make in cash.

    Another flaw is that you are making the comparison over the first 2 years only but you say you plan to keep the car for 10 years. You have not calculated and compared the full "total cost of ownership" over the 10 years so your comparisons are meaningless.

    Generally, if you are going to be financing the car 100% anyway, and you don't plan to change jobs soon, then a novated lease CAN be a comparatively "better" way to finance a car (as long as you can put up with all the minor annoyances like fuel cards, having to service it where they say, tax complications, reconciling your budget etc). Much of the actual tax benefits are eaten up with fees by the leasing company and cost calculations will always have bunch of assumptions. When doing your total cost of ownership you need to keep those assumptions rigid, which is really hard to do because your assumptions differ from the leasing company. This is actually a point of negotiation you can work with to adjust and personalise the quote…but you need to have a solid understanding of your actual costs.

  • IIGnomeII on 19/11/2019 - 15:47
    +1

    It looks as though your mind is already set on getting this lease but to throw the 2c in anyway.
    An internet forum is not the place to get financial advice, go and speak to an accountant to get the breakdown of the actual costs.

    Why you would put so much of your income into a car while apparently paying a mortgage I can't comprehend but it is the risk you want to wear so be it.
    I would say regardless of the fact you want to hold onto this car for 10 years you would be better placed buying a second hand SUV for ~$15k and then putting money aside as your income grows to upgrade to a new vehicle.

  • Euphemistic on 19/11/2019 - 15:56
    +21

    This thread is getting funny.

    OP: is it a good idea?
    Everybody: NOOOOO!
    OP: but, but …. are you sure? I’ve done the sums.

  • mini2 on 19/11/2019 - 16:01
    +1

    I dunno why everyone's pissing on the OP. I've survived novated leasing a 43k car when I was on ~$40/hour. Would I do it again? Nope. Did I die? Nope. Was it stupid? Perhaps. Granted the only difference between OP and me is the car I've bought had already suffered a horrendous level of depreciation (45% done in 2 years by the previous owner) instead of something new. Heck, that car is still in my possession after 11 years.

  • [Deactivated] on 19/11/2019 - 16:07

    DO NOT put novated lease on an expensive car as the amount of your required post-tax contribution under ECM increase based on the car value ANNUALLY.

    It's only beneficial when you drive a cheapo car a lot hence spend $$$ for petrol and the other on-going costs.

    Otherwise, you'll be seeing people put a novated lease on their weekend Ferrari. ATO is not dumb, neither the lease company nor the financier.

    As for the purchase decision itself that the others criticising, I don't think it's too bad so long you know what's the deal.

    Say you get $40k car and sell it after some years and it depreciated by 50% so the sale price is $20k
    Then you get $15k car -snip- $7.5k or let's argue it doesn't depreciate as fast as the fancy car so the sale price is $10k

    Now your net loss difference is $10k - OK. If you want to argue about interest payment and insurance premium etc, let's double it $20k.

    Is it a lot? Yes. Is it kind of money you will purely use for your retirement fund? I doubt.
    It's like, a nice European holiday with your family and some extra luxury on life given a few years timeframe.

    Is it worth? It really depends on your preference I guess.

  • bweiss on 19/11/2019 - 16:36
    +1

    What distance do you drive after getting to work in the morning?

    I've done the novated lease on a cheap ~$25k car before, and would probably do it again for tax porpoises (sic), but certainly wouldn't do it with something expensive, it's the sweet spot for convenience when consumables (tyres/petrol etc) are high, and capital cost is low. The high interest makes it rubbish with high capital value.

    Have you assessed your FBT liabilities?

  • Brouw3r on 19/11/2019 - 16:59

    I crunched the numbers and decided against it. I'm on a comparable salary and opted for a $32k Honda CR-V VTi on a 4 year loan with a 20% cash payment. My calculations put the averaged fortnightly take home pay roughly the same (and that was with generous running cost allowances) but after 4 years I would still have the residual to pay whereas now I will own it.

    My experience was that the novated lease companies I looked into tried everything to obfuscate the actual FBT liability.

  • insanowayno on 19/11/2019 - 17:17
    +3

    GO FOR IT!! DO IT!!

    That's what I would want to hear if I was in your situation but you would be silly to listen to that inner voice and sign up to that deal. I've actually had a notated lease car and I would not do it again, even though I went way below what they wanted to sell me. Especially if you are going to borrow for the balloon payment after the 2 years, just no no no. Your situation will change like you said with a kid in the future, kids are expensive!! you need to save now, not spend now.

    Do a little reading first, at least a few articles be informed before making an informed decision. I'm not sure if links work on these comments but google:
    barefoot investor letter to son
    barefoot investor free cars for life

    Read a couple books like: The Barefoot investor for starters, $19 at Big W
    Motivated Money - Peter Thornhill
    Choose FI (Financial independence)

    They will change your life!! and your future self and family will thank you over and over that you made those changes

    Good luck mate!!

    • Mentallysick on 20/11/2019 - 09:00
      +4

      Thank you
      After Listening to all, I am thinking to not get a brand new car but a same car which is may be 2 years old.

      • ShortyX on 20/11/2019 - 10:33
        +1

        Perhaps update your original post to let everyone know?

        • Mentallysick on 20/11/2019 - 11:10

          Just enquired and found that the old model donot come with many of the features that the new one have.
          Now waiting on final quote from the leasing company. Sticking with new one.

          Thank you

          • geoffs87 on 20/11/2019 - 11:22

            @Mentallysick: Haha, like a dog chasing its tail.

            Everyone wants the latest and greatest. Is it worth the extra $10k+ in depreciation to have those features for 3-5hrs a week of your life? Probably not. Probably not for a second car with only an $80k salary.

            My wife and i have one car between us, we spent $30k secondhand, and our salaries both would be nearly double your individual salary. so lets call it $30k/$300k = 10% of yearly salary went to a car, vs $43k/$80k = 54% of yearly salary went to a car.

            I understand you need it to help you get to work (we get public transport / ride a motor scooter), but i reckon you can get a commuter for far less than what you're proposing!

          • ShortyX on 20/11/2019 - 12:05
            +2

            @Mentallysick:

            Just enquired and found that the old model donot come with many of the features that the new one have.

            Such as?

            Now waiting on final quote from the leasing company.

            I thought you weren't going for the lease?

  • DonWilson on 19/11/2019 - 17:46

    You don't need a $50+k new vehicle, you need a vehicle and you want to spend a lot on buying a new one. You can't get a novated lease on a second hand vehicle and with a new kid on the way in a two vehicle home there's no way you shouldn't be spending as little as possible on the vehicle.

    You can get a 2012/13 Mazda CX-5 with under 60,000km on the clock for under $17k drive away. You have $20k in your offset account. If you pay cash and aggressively save in prep for the family expansion then it's likely you'll end up paying < $17,500. This vehicle will comfortably last you 10 years.

    I bought a new vehicle in my mid twenties because I convinced myself it made financial sense. It didn't. It wasn't a disaster or anything and I bought it straight up with saved cash. But it was a waste of money. The shine of a new vehicle fades incredibly quickly and it just isn't worth the extra cost.

    • Eeples on 19/11/2019 - 22:23

      You can get a novated lease on a second hand vehicle.

      • DonWilson on 20/11/2019 - 19:53

        Well I'll be forked.

  • toomuchdogfur on 19/11/2019 - 18:54
    +11

    If you're earning $80k a year, that's about $2.3k per fortnight after tax. So you're spending over 30% of your income on a car, not including the balloon payment.

    Including the balloon payment, you're spending $64k total over two years on this car. That's a bit over 50% of your total income over that same period.

    Think about that for a second. Do you really think it's a good idea to spend half your income on a car while juggling a baby, home loan, living expenses, etc?

    • frostman on 19/11/2019 - 20:20

      agreed as per my point below

  • FlexBargain on 19/11/2019 - 19:13
    +3

    I did a novated lease (via Smartsalary) for 3 years on a 105 k salary. Sourced the car myself (Skoda) and got my own insurance/servicing organized. Saved a bit of $ via sourcing (wanted a very specific model/color/options etc) and same with insurance. Am half way through the lease, having set a goal to have the balloon payment ($15 k) saved for the end of lease with the intention to flip the car & either get another one or cease the lease.
    I am ahead of the savings goal (about half way through the lease, have slightly over $10k saved) and partially did so to a) motivate myself with the car for my (then) relatively new role and b) have a car under warranty as I had been burned with a few cars suffering issues prior. The added bonus is I stand to potentially pocket $2-4 k with the resale value at sale time, though as pointed out - anything can happen and it could end up breaking even or even losing some $.
    I picked a very fuel efficient vehicle with suitable maintenance overheads and again was extremely frugal with the purchase price (under $32 k demo vs new equivalent $44 k). I even hunt the fuel check app each and every fill up and am willing to drive 5-10 mins to get the best value fuel (save about $300 a year vs closest petrol each tank)
    Even with that, I got specific and tailored advice that was “your about $500 a year better off” than driving the wheels off my 11 year old car that was worth less than $2k - but had no problems and was cheap as heck to run!
    So really it’s up to you. If you have your heart set on a new vehicle (by the way I would NEVER buy new!! As people have told you the depreciation is crazy!) then this would get you that. We had one child and had another one about 12 months in. Cost of living doesn’t ever go down and I would also personally never borrow against my house for a vehicle ever. If you can’t pay out the ballon in saved $, that’s probably a good sign you should reconsider.
    Also please get specific and tailored advice from someone qualified & it’s worth paying for it to ensure you arrange your situation as best you can.
    I noted you said you were starting a second job…..are you permanently employed on a salary in one of your roles? Smartsalary may not be able to offer you a lease if you are not, I know those who have found this out late and been disappointed.

  • B3r on 19/11/2019 - 19:29

    Im in same boat as you OP, looking into Novated lease V Loan.

    Speaking with colleagues who had Novated lease, i hear mostly bad reviews about it.
    Like 2 colleagues said it will affect your cashflow considerably. You will need to fork out $700+ every fortnight. Plus if you have home loan on top + Cost of living going up, you better be prepared for all these burden.
    Also, I saw you wanted to pay the balloon payment of $26k by taking a home loan. Remember once you signed the lease agreement, your credit rating is also affected. You might not get the Loan in 2/3 years time. My colleague could not get additional mortgage for his investment property because of his Novated lease. Bank told him he need to settle the lease first. I know everybody's financial is different, but i agree with most people up here, taking home loan rate(If its an option) is the way to go.

    • Mentallysick on 20/11/2019 - 16:54

      so what are you planning to go?

  • Vote for Pedro on 19/11/2019 - 19:39

    Reading your responses OP, I’m going to suggest you get some independent financial advice. And by that, I mean someone who has zero interest in the lease arrangement. And make sure it’s proper advice and not bazza from the pub

  • bs0 on 19/11/2019 - 20:07

    Hey OP how did you calculate the running costs of the vehicle if you bought it yourself? (Serious question)

    Seems the numbers are just doubled tbh.
    Like fuel $2.1k(lease) —> $4.2k (buy yourself)?
    Even $4.2k seems like a lot on fuel ($80/week), but I guess everyone drives differently.

    • Mentallysick on 20/11/2019 - 09:06

      that is for 2 years.

      • bs0 on 20/11/2019 - 16:13

        Oh gotcha.

        Can you clarify if this is what your calculations implies (as it is a bit messy):

        Purchasing by yourself costs $5800 less than novated lease, but novated lease saves you $6900 on tax.

        Meaning that you will save $1100 (over two years).

        Edit
        Someone else has asked the same below.

        There's probably much better ways to save $500/year without locking yourself into a 2 year contract. $500/year is not worth the hassle in my opinion. You could make that money easily on overtime or other means. Sell some stuff on gumtree/eBay. Stocks/dividends, investments.

  • frostman on 19/11/2019 - 20:15
    +8

    I've done months and months of research on this topic

    • If you earn less $90,001, not worth it

    • If you earn between $90,001 - $180,000, it MAY be worth it but essentially you're spending a high amount of NET money to reduce your taxable income.
      i.e - you will pay 20% of the car base value out of your NET salary to reduce your FBT to zero
      i.e you will find you've reduced your taxable income from 80K to like 77K in the first year but you've spent elsewhere out of your net income to reduce your FBT + Lease Maintenance costs + other fees. You will find your weekly/fortnightly take home pay has taken a hit due to Post and Pre tax reduction.

    • if you earn over $180,000 it is worth it.

    One more point, never buy a car which is valued at 50% of your salary.

    2nd point - you're better off in the long run to buy a car on 0% interest and heavily negotiate at the dealer

    • Frozensage on 20/11/2019 - 17:55

      Not necessarily, depends on how much money your whole house hold make. My situation, partner is on 40k salary, I bought a 26k car on NL packaged under her name. That puts her into the lower tax bracket which means more tax saved from all the running cost. I would have bought the car for 26k cash anyway, but now I can pay it off over 3 years and getting more tax benefit in return, I come out ahead over 3 years and if I sell the car for more than residual, I make more money back.

      You can still negotiate heavily at the dealer, and then once you pay deposit on the car, go back to NL and tell them the price. They are 2 mutually seperate things.

      • frostman on 20/11/2019 - 21:07
        +2

        which means more tax saved from all the running cost

        Dude, go back to her payslips and calculate how much post tax contribution she made over 3 years.
        At a rough estimate she has paid $15,600 out of netpay over 3 years
        Then you move onto the pretax component of paying fuel and servicing from her pre-tax, at her new tax bracket (19%).
        Let's estimate $5,000 per year, given she is on a very low tax bracket her pre-tax savings are very bad.
        She would be paying $4,000 / year from her salary after the tax component has paid its portion off.
        That's $12,000 over 3 years plus the $15,600 above = $27,600 - are you with me?

        You will say wait wait wait! but that's only costed me $27,600 for a car driven for 3 years including fuel.
        Cool, you forgot the residual for 36 months @ 46.88% = $12,200
        congrats you paid ~$40,000 over 3 years for the car which has severely depreciated too.

  • gimme on 19/11/2019 - 20:59
    +1

    Summary… financially NO, emotionally up to you. Close thread

  • bmerigan on 19/11/2019 - 22:03
    -1

    Adding to your home loan is WAY cheaper.

    • moo on 20/11/2019 - 05:31

      Over the life of a home loan? Say 30years? Oh really?

      • gimme on 20/11/2019 - 08:37

        Doesn't need to be. You can pay it down as quickly as you want/can. OP was going to take out the balloon payment out of the home loan anyway.

      • bmerigan on 20/11/2019 - 08:55

        1) A home loan is the cheapest loan you can get.
        2) Novated lease companies make a good profit - where do you think that comes from?

        I did the sums for the purchase of a new car myself and a lease was heaps more expensive.

        • Euphemistic on 20/11/2019 - 11:37
          +1

          1) A home loan is the cheapest loan you can get.

          Not necessarily.

          A home loan has the lowest interest rates around, but the longest term, which means you pay more interest at the lower rate.

          IF you pay off the amount in the same time you would for a shorter term but higher interest loan you will be in front. If you continue to pay the minimum you will pay more in the longer term.

          • bmerigan on 20/11/2019 - 12:19

            @Euphemistic: Well yes, I was assuming the same term for each loan, just like I'm assuming the same amount for each loan.
            Otherwise someone will say using Cash Converters is the cheapest loan you can get because it's the smallest amount.

            • Euphemistic on 20/11/2019 - 14:26

              @bmerigan: Unfortunately you need to spell out big assumptions like that for those like the OP who just don’t get it.

  • Nanokillaz on 19/11/2019 - 22:04
    +1

    I'll make a diary entry to follow up this story in about 2 years.

  • Eeples on 19/11/2019 - 22:17

    I haven’t read the whole thread but I would like to point out that in your screenshots they do not disclose the interest rate.
    Just that by itself ought to ring alarm bells.

    You might be able to choose your own finance company.

    Are you going to pay the residual?… if not, and you refinance then you get another undisclosed interest rate.

    Dealerships imo don’t service what they consider fleet cars as well as private cars.

    It’s great having fuel cards. Although you will most likely be charged a surcharge for using them.

  • [Deactivated] on 19/11/2019 - 22:24
    +5

    Always surprises me how many people don't understand how novated leases work. Whilst I have posted this information before here is my 5 cents from my experience with novated leases.
    Works best when:
    - You wanted to buy a new car anyway
    - Your income is $100k or higher (Approx)
    - Great tool for minimizing tax
    - In some instances can allow you to receive additonal Govt payments by reducing your real income
    - Work best when you negotiate the purchase price of the car first (i.e. get the lease companies quote to start with then use this to negotiate further….I have generally negotiated between 3-5k less with my past two cars below lease company quote…based on a $40k car)
    - Organise your own full comp insurance (generally cheaper and better terms)
    - Pay for fuel, tyres, Maintenance using your own money and then seek reimbursement. I use the 7/11 app :)
    - The shorter the lease term the bigger the benefit (1 year least provides the biggest savings)
    - if you have a mortgage, rather than taking the money out of the offset account to pay the car loan, use the novated lease to work for you

    Anyhow I have always come out ahead…just a matter of using the right calculator and understanding what you are getting in to. Not for everyone, but works in my situation very well.

    • Jaff on 20/11/2019 - 06:03
      +1

      You have spelled out all the benefits

  • justwii on 19/11/2019 - 23:08
    +7

    I had a look at your quote. It quoted the cost to you every year is $18983.39 (post tax) and in two years thats $37966.78 in total. Then you still have the residual of the car $26203.20 to pay in order to keep the car, so total cost is $64169.98, which includes owning the car + running cost of the car for two years.

    Simply put, $64169.98 minus the car price $43470 = $20699.98, which is your running cost in two years, thats $10349.99 per year.

    So you just need to ask yourself, do you spend $10349.99 a year to run a car? You can factor in 1. servicing 2. tyres 3. rego 4. ctp 5. comprehensive insurance 6. fuel 7. loan interest (if you get a car loan) 8. any other thing you spend on the car (e.g. car wash). If your total is higher than $10349.99 a year, then you are better off getting this novated lease; otherwise you are losing money.

    e.g. a quick example (using the same budgets you have but you need to pay GST yourself)
    $327.12 maintenance
    $335.52 tyres
    $543 rego/ctp
    $1669.08 comprehensive
    $2111.52 fuel
    Total $4986.24x1.1(GST)=$5484.86

    Here you can see $5484.86 running cost is far from $10349.99, you are in fact losing $4865.13 in this example if going for the novated lease (compare to buying the car outright). Even if you think you can't buy the car as discounted, say at $47990, $64169.98 - $47990 = $16179.98, which is $8089.99 running cost per year. $8089.99 - $5484.86 = $2605.13, that means you still need to spend $2605.13 on your car in order to break even. The only variable in the running cost is the fuel. For $2605.13, it means you need to drive 16824km more, which is 31824km a year at least to find yourself better off getting the novated lease.

    So, do you drive more than 31824km a year? If yes, go for it. Otherwise, you are losing money. However, the saving is very marginal!

Login or Join to leave a comment
Login Join