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

    • Euphemistic on 20/11/2019 - 06:23
      +1

      You missed depreciation.

  • khoaaa on 20/11/2019 - 07:27

    For what it's worth, this is a financial savvy forum therefore people will question you on why you would purchase a depreciating asset on a relatively high interest loan. But you need to ask yourself if its worth it for you to spend a significant amount of money on a car; i'm a car enthusiast myself and do spend quite a bit on my car as it brings joy to my days on the road; and if you scour other auto forums other people will feel the same way. Ideally you'll benefit the most from a lease with an income over 90k.

    On that note, i would suggest a few things to bring down the price of your novated lease:
    - Shop around and negotiate the best you can; see what other people are getting and don't settle for more. And compare with what the leasing companies gets you. Also have you considered a demo?
    - Plenty of car manufacturers these days included either free servicing or fixed price fairly cheap, its best to include when negotiating; this may either reduce or eliminate your need to budget maintenance.
    - Cross off things you don't need on the lease. This would include tyres (unless you drive plenty), purple meets green program and perhaps vehicle management fee?
    - Shop around for insurance and claim back.
    - There are plenty of hidden fees in a novated lease, make sure you do the math on your quotation to make sure it adds up.

    Also note that the interest rate on your quote is quite high.

    • BartholemewH on 21/11/2019 - 02:20

      I'm a car guy too, including cars in storage purely for sentimental reasons. I'm also an accountant. Not sure the enthusiast card can mitigate 60k tco over 2 years on an 80k gross.

  • StalkingIbis on 20/11/2019 - 07:47
    +7

    I've been doing heaps of numbers about novated leasing over the last 2 weeks because I thought, it has to be good somehow! Why would people do it otherwise?

    The more I plugged in numbers, read the fine print and considered my circumstances (Similar to yours), the more and more it seemed like a bad deal.

    After reading all your comments, I can now see why people do it. Not because it is a great idea financially, but because they lack understanding.

    You've been given at least 5 reasons here not to do it, you were unaware of each of them and you're still trying to convince us all that you should do it and its a good idea.

    If you go ahead with it, it will cost you more than just getting a personal loan. It will kill your financial situation. You might not realise how much better off you could have been (because if you did, you wouldn't go ahead with it in the first place).

    Why do you think everyone is telling you not to do it? Because they lack understanding? Or because they have understanding?

    • Mentallysick on 20/11/2019 - 09:16

      ok
      Thank you

    • frostman on 20/11/2019 - 21:09

      You've been given at least 5 reasons here not to do it, you were unaware of each of them and you're still trying to convince us all that you should do it and its a good idea.

      YES!

      Dude, I even spent 15mins doing his calculations above (unpaid, pro bono) and I gave OP the outcome of his novated lease

  • lunartemis on 20/11/2019 - 08:34
    +1

    I don't know if anyone asked how much your spouse earns and if you plan on starting a family after 2 years. Also, how much is your monthly home loan repayment?

    Unless your spouse earns more than you, I doubt you can keep up the financial burden.

    I just finished my first year with my lease and I pay roughly $300 f/n and earning $100k with a home loan repayment of $1500 (have a spouse home duty and a 15 year old). We are relatively comfortable and quite flexible with budget and if the interest rate goes up, we can easily cover.

    • Mentallysick on 20/11/2019 - 09:18

      Spouse earns 65K. Family might start in a 1.5 yrs time. $3200 a month i pay for home loan repmt.

      • brendanm on 20/11/2019 - 15:23

        Wowsers and you want to whack the novated lease on top of that. Incredible. Myself and wife have basically the same income as you and your wife, plus two kids and a mortgage. My mortgage is $450 a week. Yours is $800. And you want to buy a $43k car on a novated lease that will actually cost you $64k over 2 years, and you end up with a car worth $25-30k. I just don't get it.

      • onetwothreefour on 20/11/2019 - 16:01
        +4

        $3200 a month on a mortgage? That's double what I am paying and you and your wife do not earn double my income!

        Stop living above your means, think about what you are doing for a minute. How much do you currently save every month? Are you making extra repayments to your mortgage?

  • DarkOz on 20/11/2019 - 08:58
    -1

    To the OP.

    If you can withdraw from your home loan with a much lower interest rate, it's best to do that than a novated lease.

    If you really want to go ahead with a novated lease make sure you do all the followings:
    1. Research on the cheapest possible price of the car. You will not get the cheapest offer even when they claim that you will. So counter offer with the cheapest price you have found. We saved 1 - 2K on this.
    2. Cross out all the optional extras they have included in the lease that you don't need. Mostly insurances for everything. If you have your own insurance company it's best to go with them than with the novated lease company. We saved 4- 5K on this.
    3. Say no to any after sale optional extras. We saved 2.5K on leather seat and paint protections.

    • Mentallysick on 20/11/2019 - 09:21
      +1

      Yes i have asked the leasing company to cross off all the insurances nad have told them that i only want to pay for fuel and the rest i will claim back.
      So far when i try to get a deal with the dealer, cheapest price i have got is 45K drive away.
      SO i am thinking they have to get me a car for atleast 40,909 driveway.

      • DarkOz on 20/11/2019 - 09:32

        Have you justified your price with sales records? I sourced the price from whirlpool posts and they accepted it without further negotiation. I could have asked for $500 lower but i didnt want to waste time and delay it for a week. Good luck.

        • geoffs87 on 20/11/2019 - 11:32

          hey, any tips on where/what to search in whirlpool to find this?

          Although i said above its a bad idea for OP, wife and I are looking at buying a new mid-size SUV (for the warranty, cheap servicing plans and all round confidence vs uncertainty of a second hand car). I'm trying to work out what i could negotiate comfortably for a couple options for ~$40k SUV's. $40k is only about 13% of our combined salary, so i'm not overly concerned (and i should clear $20k selling our current car).

          • DarkOz on 20/11/2019 - 11:44
            +1

            @geoffs87: https://forums.whirlpool.net.au/forum/133 and search for the car model that you want. The result depends on if the model is popular. My car was a popular model so plenty of sales prices. We wanted it for the very same reason that you want. The prices for my car varied between 29.5k to 34k for my model and we were offered 31k. I counter offered 29.5k and it was easily accepted.

            If you can’t find anything in whirlpool you probably have to search for another site.

  • MementoMori on 20/11/2019 - 09:48

    I've done novated leases.

    The big thing people don't factor in is the additional admin.

    You need to do an expense report basically, which for me was a PITA. Keeping fuel receipts that fade, sending them in, etc. Things are easier with apps and so forth these days but still not worth it for me.

    • DrRalph on 20/11/2019 - 17:53

      'You need to do an expense report basically' You must have had a very bad leasing company. I've never had to do this. There is zero additional admin in my experience.

      • MementoMori on 20/11/2019 - 19:30

        How do they track your fuel, tyre purchases, rego, insurance, repairs etc?

        The only other option is to use something like a motor pass and be restricted on where you can take your car, who insures it and where you can fill up.

  • Duram on 20/11/2019 - 10:20

    Leases are good deals. For the ones selling the leases.

  • Szemen on 20/11/2019 - 10:22
    +2

    YMMV but I've recently done a whole bunch of calculations based off my circumstances. We had the choice of using cash outright (taken from our offset account) or on novated lease.

    Novated lease wins out due to the impact the (outright purchase) money would have on our mortgage.

    We initially had our heart set on an i30N. Then WANTED to buy a PHEV car so we looked at Mini Countryman S E. The thought process is if we were to buy a new car anyway, to use up resources and carbon might as well buy a more economical car. After week calculations, sorting out finance from novated lease side, we decided that 67k is too much.

    The cheaper and more environmental option was to keep our current car (2003 Mini Cooper S JCW).

    TL;DR, keep current car or buy cheap second hand car. Novated lease might look good on paper, but there's always a cheaper way to do it.

    • apenman on 20/11/2019 - 10:52
      -1

      How can a ~3.5% interest on the money you take out from your home loan leave you worse off than a >8% interest on a novated lease?

      Even if its fully tax deducted .. and you get 45% back because you are in the highest tax bracket you are still worse off on the higher interest novated lease.

      I thought all the other tax breaks that came from fuel and maintenance had been clawed back by ato in recent regulatory changes in claiming fbt?

      • [Deactivated] on 20/11/2019 - 11:09

        Statutory Fraction is 20% of the car value per annum IIRC.
        So if you have $2k running cost + $5k loan repayment for $15k car, only $3k need to be post-tax.
        Then 45% of $4k less fees and interests is your tax benefit.

        When I did novated lease on my toyota hatch for about 15k odo per year, the annual tax benefit was about $2-3k.
        Not sure if it worth all the hassles but was definitely better than cash purchase.

        • ShortyX on 20/11/2019 - 12:03

          Not sure if it worth all the hassles but was definitely better than cash purchase.

          Really, can you show your calcs? I don't understand how a lease could be better than paying cash for the car.

          • [Deactivated] on 20/11/2019 - 12:24

            @ShortyX: I've looked up my record and actually it was worse than that.

            car value: $10k
            APR: 10%
            lease term: 3y
            Interest: $3k($1k/y)

            exp/y: $2.8k lease payment + $3.2k running cost = $6k

            ECM(post-tax payment) = $2k/y
            pre-tax payment: $4k/y
            tax benefit: $4k - lease company fee $500 = $3.5k * 34% tax = $1.2k from income tax
            $300~ savings from running cost GST if your employer provide it.
            approx. $1.5k net tax savings in total per year.

            Then at the end of the lease, you need to deduct your interest payment $3k.
            $4.5k savings - $3k interest. So all the hard work for $500/y savings.

            Tho it varies based on the car value and the petrol costs.

            • Mentallysick on 20/11/2019 - 13:20

              @[Deactivated]: yes i think i have prety much the same figure. I saved like $1,200 over 2 years period.

              Thank you

      • Szemen on 20/11/2019 - 14:07

        Because the interest is not on the money I've taken out but on the principal itself. 3.08% of ($XXX,XXX-cost of car) or 8.x% of Cost of Car.

        Then calculating the accrual of interest based off the principal minus cost of car over the life of the loan. What I didn't calculate was the lost income due to novated lease and the impact that will have on the offset. It just became a massive spiral of factors.

        • Euphemistic on 20/11/2019 - 14:34

          It just became a massive spiral of factors.

          That hits the nail on the head. It’s also what novated leas companies rely on. Hiding true costs in the fine print, focussing on the tax savings etc.

          At the end of the day owning a car or leasing a car is an expensive exercise. Sure, in some cases you can get a benefit by goin one way or the other. in the majority of cases it is probably 50/50 as to which method is better.

          Ultimately it probably relies on perception biases of the person wanting the car. Ie if you think that a novated lease is for a wealthy person you might be biased towards a lease if you are the type to ‘keep up with the Jones’. Once you’ve got your personal bias, you’ll probably find some obscure calculation to justify your decision.

          Buy an old car for cash. Cheapest one you can find and you’ll save a lot more than the difference between a lease or a purchase of a newer car.

        • apenman on 20/11/2019 - 15:59

          The interest is on the net of the principal and the offset account. Which will change by the amount you take out .. so you will pay interest at the home loan rate on the cost of the car. This is not visible, and will only show up as an increased interest charged to your account .. but you have to remember .. most of that interest you would be paying anyway .. only the amount from the car is additional.

          There is no spiral effect .. There is a lot of misunderstanding here .

      • wannagrababargain on 21/11/2019 - 12:47

        It's worse off because you are paying off the home loan (at 3.5%) over 25 years vs a car loan (at 8%) over 3-4 years.

        For example, when you add $xxk to your mortgage your loan will be recalculated and your monthly repayment will go up by $YYY. This $YYY is a monthly payment EVERY month for the REST of the loan. The $xxk is ammortised, with the 3.5% interest, over the remaining life of the loan. This could actually be great if your home loan has say 3-4 years left in it, but is terrible if you have 20 years left in the loan.

        Let's put some hard numbers on it. Say you have 20 years left in your home loan at 3.5% and you added $40k to it. This would increase your repayments by $232 per month. Over the next 240 months you will repay an extra $55,676 which equates to $15,676 of interest on that original $40k. Let's compare this to a 4 year loan at 8% on $40k which would give a monthly repayment of $977 to clear the loan after 4 years. Over 48 months you will pay $46,873 which eqautes to $6,873 in interest. You end up paying more than DOUBLE the interest by using your home loan instead of an appropriately matched ammoritsation period and loan. Now let's look a more favourable scenario, you have 4 years left in your home loan at 3.5% and add $40k to it. This would increase your repayments by $894 per month. Over the next 48 months you will repay an extra $42,924 which is only $2,924 interest. Obviously your cashflow has to support those higher repayments. Equivalently you could achieve the same by doing this at any time and religiously paying extra into your home loan over 4 years but if the cashflow can't support it you can easily slip into just the basic repayments and still end up paying off the car in 20 years…

        • apenman on 22/11/2019 - 10:49

          This is only true if you are increasing your loaned amount. And even then .. the interest is calculated daily so if you make the same repayments you would have to cover the notional amount over the 3-4 year period in an offset account the result is the same… the notional comes down and the interest stops.

          I don't understand how you only care about making additional repayments on the homeloan and not an ADDITIONAL car loan? Ofcourse you can make the additional payments .. that is the only reason you CAN take out a loan….

          I agree if your repayments are fixed at the minimum required, and you are not adding to your offset or paying down the notional in any other way then you are correct.

  • onetwothreefour on 20/11/2019 - 10:35
    +3

    Gotta be a troll.

  • bizarredeal on 20/11/2019 - 12:23

    OP whatever you decided to do.. can you share your experience on ozbargain about the outcome in 2 years? It will be a good learning experience on using or not using novated lease.

    All the best with your decision.

    • Mentallysick on 20/11/2019 - 13:18
      +1

      Thank you

      Yes I will definately let everyone know about it. As i have updated the topic. I will be doing the same for this journey from here onwards.
      I really appreciate every ones opinion and done feel bad that i did not listen to you all.

      Waiting on the final quote at the moment.

      Thank you

      • John Kimble on 20/11/2019 - 13:45
        +3

        done feel bad that i did not listen to you all.

        Haha…it has zero impact on any of us.

        • Fobsessive on 20/11/2019 - 21:06
          +1

          It wasted our time. 4 pages!

        • SolidworksError on 21/11/2019 - 01:55
          +1

          Yes it does, someone will get a great deal on an ex-lease 2 year old car when op realises drawing another 23k to actually own it is an absurd proposition. Hopefully they post it to ozbargain

      • Jaff on 20/11/2019 - 15:29

        I was able to negotiate the rate from >5% to 4.1%. worth a shot.

  • dogboy on 20/11/2019 - 14:23
    +2

    Buying a car that costs more than half your yearly salary is just plain stupid.

  • SlickMick on 20/11/2019 - 16:36
    -1

    In answer to your question, as opposed to the judgement most seem to be dishing out, I found that i works out pretty similarly - you pay higher interest plus admin fees, but save gst and income tax. I haven't crunched your numbers, but we've twice used novated leases. It's kinda nice not having to limit your fuel purchases to what vouchers you have, but just always save 10%, and you have fixed payroll deductions rather than paying your own bills.

    btw I'm unemployed and we just spent significantly more than $43k on most recent car. I hate that cars cost as much as they do, but you gotta live your life. WHen it's all over, I won't be thinking "wish I'd saved a little more".

  • Frozensage on 20/11/2019 - 17:42
    +4

    Alot of ppl hating novated lease here it seems. I got one with my 26k sp25 1.5 years ago. I did all the number crunching and with the tax benefit of salary package, I come out ahead by 7k after 3 years. If I can sell the car for more than the residual, I'll be even further ahead. So I don't think it's 100% a bad way to go.

    The important thing is to do all your own numbers, and get your own price on the car. Then go back to the NL guys and tell them to update their quote based on your numbers. And it doesn't really matter if they allocate limit for petrol, servicing, etc… it just comes out of the one big contribution pool of money. I am over my "other cost" category by 1k now….

    Also nothing wrong with buying a brand new car. 5 years warranty, and if you pick the right car, you have a good resale value, and 3 years the car will still have plenty of value when it comes to sell.

    There is a post on whirlpool dedicated to NL, will definitely get more info there than in this thread.

    • DrRalph on 20/11/2019 - 17:49

      It is hard initially to see the benefits of a novated lease. The figures can be overwhelming and confusing. I think that most people are against novated leasing because they really can't see the benefit. I agree it's hidden away in the figures. But after 6 novated leases I know I'm ten's of thousands of dollars ahead. The tax savings are huge. There's a reason why the government tried to shut this down a few years ago!

      • Frozensage on 20/11/2019 - 17:59
        +2

        that's right. Automatically ppl get turned off because they see you are taking out a loan to buy a depreciating asset. That bit is crap, but the tax benefits you get from salary sacrificing makes all the difference.

        You also don't need to use their fuel card and can keep filling up as you do normally but now it's gst free and tax deductible.

        • DrRalph on 20/11/2019 - 18:05

          Yep, it took me 5 years of other people telling me how I should consider a novated lease for the financial benefits. Every time I looked at it, I put it into the too hard basket. But, given the right amount of time, and perhaps some advice from a financial planner, I think people can become aware of the benefits. I have benefited enormously - I'll add that I would have benefited just by the novated lease but I have been smart enough to purchase a car that I've been able to sell for 15% above the residual amount each time. That's extra money in my pocket.

          Again, there's a reason why the Federal government tried to shut this down around 5 years ago.

  • DrRalph on 20/11/2019 - 17:47
    +1

    Go for it. I'm on my 6th novated lease. Huge tax advantages and a new car every 2 to 3 years.

    • ShortyX on 20/11/2019 - 18:45

      I don’t think OP is better off going for a lease. Can you give a brief rundown of how it is cheaper for you?

  • ComfortablyNumb on 20/11/2019 - 18:49
    +2

    My advice, I've been through three, you can get a novated lease on a used car.

    It will be massively cheaper for a similar vehicle to what you're looking at, the residual will be small and most of the high depreciation has taken hold.

    Look at pickles auctions, other ex government vehicles, they usually have great service records, are completely fitted out and still under warranty.

    There's nothing to stop you renewing the lease at the end of it either.

    This method you still get all the great tax benefits (eg fuel, insurance, rego).

    Oh and don't fall for their included packs etc, shop around. I cancel ALL of their great packs they try to throw at you (useless.. windscreen repair, scratch, tyre, green fleet etc) and keep my own roadside (RACQ)… Not that I've ever really needed it. Even their mates rates insurance… (Although you will need to advise the insurer you are applying with it is a novated lease)…Amazing how much you can save… And again, extra tax saving on that.

    Once the kids are a bit older, your car isn't going to remain beautiful and shiny inside and out any more.

    Finally… Don't rush into it, don't be overcome with "great deal" "limited time". They are salesman after all… and we are Ozbargain.

  • donotuse on 20/11/2019 - 19:06
    +1

    I earn a lot more than the OP and I only spend $70-ish on transport per fortnight. I use public transport whenever possible.

    Cars are money guzzlers just saying.

  • Changskies on 20/11/2019 - 19:12

    As promised, I'm back with my 2nd meeting with the finance company. For me, I asked 35k car for late 2017 model. Anyway it saves me a little (emphasise on little) vs buying outright + expenses buying out right. it worked out okay-ish since I'm on a higher bracket + cheaper car…

  • avoidfullprice on 20/11/2019 - 19:39
    +2

    What is this save share deduction you are signing up to？ I just checked my novated lease contribution and is not on my budget at all.

    So breakdown aside, look at how much is taken out of your salary v.s. put in your car per annum:

    Salary:

    A) pre tax = $15,709
    B) post tax = $8,694 (eqiv to $12,880 before tax at 32.5% marginal + 2% Medicare levy)

    Total reduction in salary = $15,709 + $12,880 = $28,589

    This is split to:
    1) $20,405.64 for your car budget
    2) $3,207 for this save share thing
    3) $790.36 GST on employee contribution

    So you effective pay 100%-$20,405.64/$28,589=29.6% of tax for the budget. That's less than 5% gain (32.5%+2%-29.6%=4.9%)

    Expense:

    A) $15,186.84 for your lease
    B) $168 for fees
    B) $20,405.64-$15,186.84-$168 = $5,050.80 for running cost (insurance, fuel, rego etc)

    You get 10% GST back on your running cost. If your budget reflects your true cost, you gain $505.08 a year.

  • Typical16-bitEnjoyer on 20/11/2019 - 20:41
    +1

    Did I miss a post somewhere?

    What is the model of the car?

  • frostman on 20/11/2019 - 21:10

    Oh BTW, DONT use the Lease Company Calculator!

    They're a joke and aimed to show you how wonderful it is to save tax.
    They wont tell you about their hidden fees at all.

  • nimnomnimy on 20/11/2019 - 23:15

    if you are set on the car i suggest you extend your home loan to buy the car because if you novated lease, you will have fbt and the interest rate on the finance will be higher. i don’t think your salary is high enough to get a sufficient tax benefit to cover the bottom end.

    i know what it’s like to get attached to a car but if you are looking at buying new, consider looking at demo cars or cars within 3 years if they car has had an update.

    what car you going for?

  • SolidworksError on 21/11/2019 - 01:50
    +5

    @op, judging by the comment threads, you're not going to listen, but:

    You're making a poor long-term decision for instant gratification. You're spending beyond your means, and choosing a non-competitive loan product while doing so.

    If you need a "nice" car, 20k spent on a used lexus will have you a more reliable car, and in 3 years you'll still have a 15-18k car, compared to a 15-20k mazda or subaru from your 43k brand new purchase.

    If you must have the shiny bauble, at least refinance your home to a competitive rate (3%), and go from there.

    And do not get the novated lease.

    I don't know how you look at the situation you're setting yourself up for and say "wow, this is an awful roadmap I've laid out":
    -43k car which will be worth 15 in 3 years
    -23k balloon payment which you'll take another loan for or pull down from your mortgage, to buy the now 18k car you've already paid $37960 for
    -kid coming

    I know this is harsh, but look at the Dave Ramsay call-in situation in the making.

    If you buy a 20k lexus instead:
    -let's pretend 23k in payments over 2 years
    -15k car left, from 23k spend (65%, vs 30% return for the lease option you suggest)
    -pretend you saved the other 15k you weren't spending on the huge fortnightly payments
    -15k cash to put away in an account for schooling for kid, or a nice holiday, or to dump on your mortgage, or even burn it at the casino, and you'd still be better off

  • halo9 on 21/11/2019 - 01:54
    +3

    So much great advice here that’s being ignored. Here’s my 2 cents for you. You might save a few hundred dollars a year, but after all the effort of tracking everything, the hours of forms and back claims over 2 years, is it really worth it? It will cost you your time, time you could spend with your family/friends. What’s that worth? If it was me I’d buy a 1-2 year old car (I’ve done new, spent $40k cash, sold it 3 years later for $19k), save a bucket and still have a new car for much less. I will never buy new again. Second borrow against your mortgage if you can, will save you more in the long run. Third, most banks offer free basic financial advice if you have a loan with them, use this!! I also highly urge you to see your bank manager and tell them your idea and how you will borrow the balloon payment after two years and with a potential kid on the way, then watch their reaction. Seriously if you haven’t spoken to your bank about borrowing $26k extra today without any extra risk taken onboard (novated lease) then you haven’t done your homework. If they say no today, forgot about it in a few years.

    I’ll leave you with this. I worked for a big company that used novated leasing for all vehicles because it works great for companies and tax. Our novated lease pool was worth over $300 million, suffice to say we had the top dogs from the agency on hand. When enquiring for my own lease the actual lease agent advised me against it and said on my salary, a little over 6 figures at the time, it wasn’t worth it. You need to be on $180k+ to get real benefits was what he told me or have disposable income (meaning no mortgage/children) to cover the risks. i.e loss of job, interest rates going up, car accident, etc. What really got me was when I was asked what if something happens to you? Besides my wife not being able to pay the mortgage, the lease company takes the car if you default payments. No house, no car. This is what happens when the lease company gets enough $$ that they don’t have to target you….solid advice. I went out and bought a car with savings for half the amount and made sure my life insurance through super covers the house costs plus living for my family. Do what you want but think of your family too. I’m sure there’s middle ground.

  • SolidworksError on 21/11/2019 - 01:57
    +1

    Don't get me wrong, a novated lease can be a good strategy working on the assumption that:

    -You must have a new car
    -You're in a high enough income bracket that it's financially better than a competitive loan product

    From the limited information op has given, neither is true.

    Oh well, they definitely want the shiny new car, so best of luck op.

  • m00c0w on 21/11/2019 - 08:09

    Haven't read through the whole thread, so I'm unsure if anyone has mentioned this. But have you considered an associated lease instead. It'd make so much more sense in your situation.

  • WWFM on 21/11/2019 - 09:30
    +2

    An accountant explained to me that for a novated lease to work, you need high income, cheap car and lots of mileage (because you pay for running cost from before tax $). A doctor, driving a corolla that drives to and from the outback is the golden triangle. I don't think op qualifies.

  • Jaz82a on 21/11/2019 - 09:50

    Currently on 150k salary with a Mazda CX9 GT (was brand new) worth 60k fully maintained.

    I have the opportunity to negotiate a different arrangement, is it worthwhile getting more in my hand and buying my own vehicle or rolling this one over?

    keen to hear peoples views.

    • apptrack on 22/11/2019 - 14:44

      Rolling it over as in extending the lease?

  • bocca on 21/11/2019 - 10:28

    dont get a loan

  • SpendLess on 21/11/2019 - 13:19
    +24

    for new people out there
    TLDR:
    OP: hey everyone i am about to do something stupid and want to know if it is stupid?
    Everyone: yes its stupid
    OP: Ok thanks im going to do it anyways

    • Benicio on 21/11/2019 - 18:56
      +2

      Perfect summary.

    • Andard on 27/11/2019 - 13:52

      My favourite kinds of posts because the comments are hilarious

  • jtc13 on 21/11/2019 - 14:04
    +1

    For years I looked at novated leases and could not make them work versus buying the car myself. Finally with one employer they contributed 30% to the running costs of the vehicle which made the lease work. To give you a comparison at the time I was on 120k per year. Went for a car that was 51k and was only paying $480 a week for three years.

    Without the company adding in the 30% I would never do a novated lease. Find a good second hand car and purchase it outright.

  • dwillia on 21/11/2019 - 20:03
    +1

    OP has already made her decision, she is just seeking approval from you lot!

    From her answers is clear that an emotional decision has already been made and she'd like some logic to back that up!

    YES A LEASE ON A $43K CAR FOR TWO YEARS IS A FANTASTIC FINANCIAL OPPORTUNITY!!

  • dwillia on 21/11/2019 - 20:08
    +1

    Here's my lease story for what its worth

    Leased a Nissan Xtrail, 4 year term - car was an absolute lemon, biggest piece of crap I've ever driven - was so bad it was making me angry/sad/frustrated every time I drove it.

    at the three year mark I could stand it no longer and handed it back, plus 8K to walk away from the lease.

    I'm a self confessed spender, I've made many financial boobs - this one stands out as the most pointless

  • mini2 on 21/11/2019 - 23:36
    +1

    It's alright, I'm sure the OP will learn their lesson in due time. However, one of my colleague is on similar money as OP but he had no less than 3 cars over the years on novated lease with his current car being the 4th. Not only that, he had to terminate the lease once and bitched about the payout.

    Some people just don't bloody learn…

    • DemocracyManifest on 21/11/2019 - 23:38

      It’s (profanity) hard enough to get a credit card but 4 cars!!!

  • Laurenlauren on 22/11/2019 - 05:19
    +5

    Ignore the nay sayers, go for the lease. Make sure the car is spacious enough for a new family because you'll soon be living in it after making such poor financial decisions.

  • hamcp820 on 22/11/2019 - 11:28

    Based on the Ops calculations, it seems the total of cost of lease will cost more then buying the vehicle outright over 2 years $5832 more!!! Can't see that as a deal for a new. Have you considered doing rolling 1 year leases?

    • eye on 22/11/2019 - 11:58

      You also need to factor in running cost which is bundled in the lease figure which made it bigger than original price. After factoring saving from pretax cost, I think he would be more likely at least a few hundred dollars better from a 2 years lease. I do novated lease as well and I only do 1 year to maximize the depreciation which is pretax.

      • hamcp820 on 22/11/2019 - 14:03

        Yes that was including the post tax running costs.

        My reason for suggesting 1year, you could knock off the amount of interest paid over the 2 years due to the higher balloon payment (65% of the vehicle in the 12months). Your take home pay will be less but you end paying down on the vehicle quicker which means less total interest. Your balloon payment in the 2nd year will be even lower.

  • eye on 22/11/2019 - 13:39

    We bought a Mazda 3 Maxx 2 years ago with 1 year lease. Drive away price was $23290 including metalic paint, floor mat, 1 year rego, dealer delivery fee, stamp duty etc..

    Lease: After factoring the pretax benefit, our actual out of pocket cost is $26000 at the end of 12 months. This includes $1077 insurance(which I think would be $800 if I go RACQ directly), $80 road assist(same as RACQ), $1850 petrol.

    VS

    Cash: $23290 upfront + $800(insurance) + $80(road assist) + $1850(petrol) + $340(service) + 470(opportunity cost from interest @ 4% if I leave it in our loan for 12 months) = 26830

    So for 1 year lease, I was about $800 better off. Not a game changer but money is money plus I was not doing anything extra apart from initial setup and paying balloon at the end. $800 for half a day work isn't too bad. And this final reconciliation pretty much matches my calculation prior to commencing the lease. Also, by my calculation, I would still be a couple of hundred dollars better off for 2 years and would be worse off from 3 years lease onwards. But we don't drive much. For someone knocks down big mileage, he would be better off with car running on pretax fuel.

    And we had another lease for a santa fe about 5 years ago where we got a $6000 special negotiated deal from leasing company.

    The lesson I learned from our experience is Leasing is not as good as advertised. I think their magical "saving" figure is calculated based on some bad car loans. I was never sold of their stories. If you have cash or money in your home loan, the difference is marginal. I probably would go for it again if there is a special deal like how we got our santa fe. Otherwise, if you definitely need a new car, just get an one year lease which maximize your return and maximize your flexibility.

  • badarz on 22/11/2019 - 17:25

    This is the best calculator I've come across. https://www.toyota.com.au/finance/personal-car-finance/novat…
    Customisable interest rate, insurance cost and a few other things. Best thing is it allows you to compare to buying with cash outright and even includes the opportunity cost of holding on to cash (in a term deposit) instead of spending it on a car.

  • redfox1200 on 22/11/2019 - 19:07
    +2

    from your future child, don't do it daddy

  • Mentallysick on 25/11/2019 - 12:04

    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.

    • Euphemistic on 25/11/2019 - 13:00
      +1

      I think you mean more reason to get a cheaper car.

    • jerrus on 25/11/2019 - 15:01

      If your loan is over 80% LVR (loan to value ratio) you should aim not to incur any extra debt till it is under 80% LVR. LMI when the debt is over 85% gets steeply more expensive up to 2% of the loan size. It might be better to stick with an older or cheaper car for now and get the new one in a few years. (for what its worth I'm earn about the same and I'm having a baby in Feb next year and I drive a 2003 Mazda 2, might buy a Honda accord of a sister for around 4k (market value 6k))

      I'm a mortgage broker and always amazed at how people end up with increased debt after getting a loan over 80%. With property values dropping over the last 2 years we get people attempting to consolidate car loans/credit cards onto a property and the LVR would be over 95% (sometimes 110%) so we can't help them. One of the older guys in the office who has been doing this for 30+ years says it always happens that people get the new home then want a new car to go with it and take on way to much debt. Really check how much you could save by getting a cheaper car and paying down your home loan sooner.

  • dazza826 on 25/11/2019 - 13:34

    Op - I can see the quote is through smartsalary. Having done 2 leases through them make sure you do the following if your set on it to save money.

    Check if you can use your own finance (some employees let you do this) and have smart salary administer the lease you will save quite a bit overall.

    Hop onto CBA and get a quote for novated lease finance, and compare the balloon payment and amount paid per each lease payment noting CBA will quote one month in arrears, smart salary do 2.

    The admin fee is less per year this way too and the amount of the loan repayment plus balloon payment is significantly less as smart salary bundle their commission into this.

    Look at used or at the very least if buying new arrange your own quotes and have the financier pay the bill they also get money from you here.

    Look at arranging your own insurance, paying for fuel and then reimbursing if you can.

  • brad1-8tsi on 26/11/2019 - 08:00
    +1

    OP. Have you looked at carsales.com.au?

    There is an absolute truckload of (19 to be precise) 2019 Subaru XV at dealerships with less than 10,000km for less than $30,000.

    I'm not saying don't get a novated lease but a 2019 vehicle (which will be classified as 1 year old on the 01/01/2020) with 2500km on it for <$30k when you are talking $43k. is that not a red flag?

    Even the Limited Edition is only $35k drive away and the Premium is $34k d/a.

    Where on earth are you getting your prices from.

    PS: My sister just bought an XV. Holey cow they are slow (as slow as my old Liberty RX). And from my experience, Subaru's love a drink. Don't expect great fuel economy. AWD will do that…

    • Mentallysick on 26/11/2019 - 09:40

      We have changed our mind. we are looking at mazda cx 5 now.

      • brad1-8tsi on 26/11/2019 - 09:45
        +1

        i think they love a drink too. or is that the bigger one?

        GL with it. I think you are nuts buying new on your salary. Aim for a 2017 with <30k km and wait till january when you can say "that car is 3 years old"

  • droodle on 02/12/2019 - 21:15
    +2

    From the weekends barefoot investor ….

    Christmas came early for my kids this year …

    Daddy finally got a job.

    (Well, to be accurate, 220 hours of community service as part of my Financial Counselling qualification.)

    On my first day, the three of them surprised me by getting up really early and having a celebratory breakfast with me (possibly with the aim of making sure I really did have a job to go to).

    And when I returned home that night I was greeted — for the first, and possibly last, time — like David Boon coming home with The Ashes.

    “Didja have a lot of meetings, Dad?” asked my six-year-old, beaming with pride.

    In the schoolyard, real dads go to work and have meetings. (Not bum around the farm in their trackie dacks.)

    It doesn’t matter that he can see me on TV, hear me on the radio, and watch me do book signings with lines a hundred deep: when I’m wearing a tie, carrying a keep-cup and battling the morning traffic, I am THE MAN.

    So now that I’m a couple of hundred hours into this job I’ve learned that it’s like being a (financial) E.R. doctor.

    No one wants to be sitting in front of me.

    They’re often embarrassed, humiliated, angry, scared … and completely strung out about their finances.

    My job is to sit them down, calm them down, and assess their situation.

    It’s basically financial triage: you patch them up, stem the bleeding, and send them back out (where you can). Or, if you deem their situation terminal, you tell their creditors and cut deals on their debts.

    (This of course sounds sexy but, trust me, if your life gets to the point where a bank is willing to write off your debts, you’ll be celebrating with spuds and spumante.)

    Above all, what I’ve learned is that this job is relentless.

    Debt in this country is an epidemic, and people of all shapes and sizes stream through the door.

    Like a bloke in his 40s that I saw today.

    He arrived to our appointment in a BMW X5.

    “Why does this guy need to see me?” I thought to myself.

    He sat down, threw his fancy keys on the table, and buried his face in his hands.

    He confessed that he’d leased the car five years ago and now couldn’t afford the final balloon payment. (And if you don’t know what a balloon is — don’t feel bad — neither did he.)

    The upshot was that he was broke, and the Beamer would soon be repossessed.

    Yet you know what?

    To the outside world he’s THE MAN. He’s got an awesome car that he drops his kids off to school in.

    By the time he came to see me, it was too late for him to avoid his mistakes.

    But it’s not too late for his kids.

    And what this financial tour of duty has taught me is just how much we need a financial revolution in our schools.

    My client grew up thinking that success meant leasing a $100,000 Beamer … and he paid the price.

    I want his kids to grow up knowing that success is driving a $15,000 Toyota … that you own outright.

    Tread Your Own Path!

  • avoidfullprice on 18/12/2019 - 16:04

    Glad you're not going through out. Good luck picking a bike… but thought you were getting a mobile for family?

  • SelfMade on 05/01/2020 - 21:36

    Generally speaking as a rule of thumb you should be looking at spending approximately 30% of your annual income on a car. That is what most financial planners would advise as a car is a depreciating asset. 30% of course is erring on the conservative side.

Login or Join to leave a comment
Login Join