Need Help with Novated Lease Maths

• 

  Hybroid on 12/05/2020 - 19:55

  Is the value of the car in both cases exactly $47,500?

  If so, and rest is all factual data then the likely error is in this part:

  Novated lease is also a 4 year term but the finance payment is fortnightly so I converted it (350) to a month figure of 760.38 (x26.07/12)

  Can you expand further on how you derived that.

  Also, were you told the figure below or assumed it? Is it actually tax-free or just that there's deductions pre-income tax?

  I’m so confused but because firstly the novated lease company says the car is tax free so it only finances 47500 - GST or 43,181.

  Ask lease company for a full detailed breakdown, they do provide this and it shows all the calculations to avoid any assumptions.

  • 

    Pelicannn on 12/05/2020 - 20:01

    Well the car is 47,500 as agreed by the sale contract

    When you lease a car you save the GST hence the price is now $47500 - GST right.

    The $350 is written on the quote of the novated lease as the amount that goes to the finance company each fortnight. There are 26.07 fortnight’s in a year so I just multiplied to get the annual payment and divided by 12 to get the monthly payment.

• 

  MS Paint on 12/05/2020 - 20:02

  Which tax bracket you in?

  • 

    Pelicannn on 12/05/2020 - 20:16

    37%

• 

  Pelicannn on 12/05/2020 - 20:23

  I guess I just don’t understand this part:

  Car dealer amount and finance lease amount are known (653 and 760). I just don’t understand how the lease is more expensive over the life of the loan if the amount financed is less and so is the interest rate. It’s surely not possible right?

  • 

    zoom bean on 12/05/2020 - 21:04

    +5

    Novated lease amount most likely includes vehicle running costs, fuel, insurance, rego, etc.

• 

  trex on 12/05/2020 - 20:26

  I worked out the effective interest rate as 7.45%

  How did you work that out? Try this tool

  The dealer would be (48 x 653) + 20459 = 50,432
  The novated lease would be (48x760) + 17891 = 54,371.

  bad math

  • 

    Pelicannn on 12/05/2020 - 22:23

    Sorry too many numbers on my spreadsheet. Top number should be $51,809.

• 

  John Kimble on 12/05/2020 - 21:06

  Running costs?

  • 

    AirbusA389 on 12/05/2020 - 21:17

    rego, tyres, servicing fees, etc - are they part of the package or additional?

• 

  [Deactivated] on 12/05/2020 - 21:56

  +2

  There's quite a few articles on this topic if you take a look through the old posts.
  If you are looking to purchase a new car, a novated lease will most likely win out in all scenarios vs a dealer purchase.
  The reason for this is the novated lease is paid in part by your pretax earnings meaning you'll pay less tax overall, when you take in running costs, maintenance, depreciation etc.
  Best idea is to get the lease company's price on the car purchase first, excluding running costs, then take this quote and negotiate the dealers down even lower. Once you have done this get the dealer to send a formal quote to the novated lease company and get he lease company to handle it from there.
  I've had 2 novated leases….I usually get the lease term for 1 year to begin with (note it will cost more in repayments for the first year), then if you decide to roll it over for the second year the costs will be considerably lower. If you sign up for a 4 year lease and you want out prior to the end of lease you need to pay the missed interest the lease company would have earnt.

• 

  Pelicannn on 12/05/2020 - 22:19

  The $360 is finance ONLY from the novated lease company. The total package is $501 a fortnight including running costs. I am ignoring the running costs at this stage and looking purely at the finance amount.

  The dealer is $653.13 a month and a residual of $20,458 = $51809.18
  The lease is $787.48 a month and a residual of $17,891 = $55690.04

  The lease finance is supposed to be 6.73% (that’s the rate on the paperwork) and the amount leased is $43,373.82 (which is $47,500 minus GST)

  I haven’t made any of these numbers up. So surely the lease is not 6.73% as they have advertised on the paperwork.

• 

  Pelicannn on 12/05/2020 - 22:25

  The lease seems way worse. Like the rate they have offered 6.73 on the paperwork isn’t a comparison rate with all their hidden fees?

  I just can’t understand. Lower amount financed but paying significantly more over the life of the loan.

• 

  Thatguy01 on 13/05/2020 - 04:58

  Check what's included in the finance amount with the NL. Specifically insurances, but can include other things. This will give you an inflated finance amount when comparing figures. For me, in my cirsumstances the insurances were important, but there were options where you get better value for money. But that's a whole different topic.

  Edit: not talking car insurances, lease insurances like Gap insurance. Not to be confused with running costs.

  I think a common trap for people comparing interest rates like comparing mortgages, when it's more similar to comparing mortgage and rent. There is not interest rate with rent or lease payments, but they calculate a nominal rate of interest by working backwards. They take the total lease payments for the period and compare it to the original value. The difference is the "interest" and then a interest rate can be calculated.

  By all means make the comparison, but use the numbers, not interest rates.

• 

  whitelie on 13/05/2020 - 05:46

  The figures all seem wrong to me. Which ones are off the quote and which have you worked out yourself?

  How did you calculate the dealer rate to be 7.45%? It's more like 3.1%
  Punch the numbers in here.
  Purchase price $47,500
  Interest rate 3.1%
  Monthly repayments and 43% balloon ends up at $653.25/month.

  As for the lease, if the price of the car is less 10% GST, it will be $42,750? You said $43,181 in the OP, then $43,373.82 in another comment. Which is it? Did you calculate the balloon or is that off the quote?

  • 

    Thatguy01 on 13/05/2020 - 05:57

    I didn't check the numbers myself. But by your calcs it reaffirms to me that there are other costs like gap insurance or similar included in the NL financed amount

  • 

    Pelicannn on 13/05/2020 - 06:40

    Not 42,750. It’s (47500/11)*10 to get price less GST.

    I may have quoted two numbers accidentally. The 43,181 is GST free cost of the car but the 43,373 is the price financed (I assume their establishment fees built into this).

    I very well could have worked out the wrong dealer rate. Here’s what I did.

    Listed all the payments in excel (48x653.13) plus the balloon at the end 20,459.
    Added these two together to get total paid (51,809), then took away the initial cost of the car 47,500. Remaining was 4309 (the interest paid). Then took away the interest from the total repayments (48x653.13) = 31,350 - 4,309 = original loaned amount 27,041.

    I then went to moneysmart. Selected a 4 year loan, put in the 27,041 and upped the interest rate until it hit $31,350 which was 7.35% give or take.

    Was my error that the interest is applied to all of the amount including the balloon?

    • 

      whitelie on 13/05/2020 - 06:51

      You pay interest on the full amount as you're borrowing the full 47,500 but have a residual amount/balloon after 4 years. They don't subtract the balloon and put it aside.

      • 

        Pelicannn on 13/05/2020 - 07:02

        Yep that was my error! Cheers!

  • 

    Pelicannn on 13/05/2020 - 06:50

    I just looked at that Stratton calculator and yeah looks like I was just applying the interest on the 27,041 but should apply it on the total 47500.

    This means the dealer finance rate is much better and I’m an idiot 🤪

    So now to work out which is better.

    The lease would have me pay $501 a fortnight and I worked out that $32.50 of that is fees - $850 a year!!! Plus their start up fees amount to almost $1000 too!

    501 x 26.07 x 4 = 52,244 plus I’d still have the balloon at the end = 17,891
    Total 70,135.

    If I go dealer I pay 653.13 x 48 = 31350 plus the balloon 20,459
    Total 51,809.

    So I have to guess - is 4 years of running costs going to amount to the difference of 51,809 and 70,135.

    • 

      Pelicannn on 13/05/2020 - 06:56

      This is probably a little more complicated cause running costs are partly paid tax free with the lease.

      My split would be $253 pre tax ($23 add back employer paid GST) and $349 post tax. So I guess I’m saving $100 a fortnight on tax.

    • 

      whitelie on 13/05/2020 - 06:57

      5k per year…gets chewed up pretty quickly when there's roughly 1.5-2k in rego and insurance.
      You also don't pay GST on a lot of that stuff so your dollar goes further.

      One thing to consider is the resale value after 4 years too. You'll be 3k in front with the lease. You don't want to have to finance the 20k balloon if the cars only worth 15k. Also I believe if there's money left in the lease kitty when it's finalized you get it back.

      • 

        Pelicannn on 13/05/2020 - 07:51

        Yeah so the other option C I have considered I’d just a straight 4 year car loan and no balloon. I am happy to pay those repayments.

        I don’t have maintenance costs as it’s included for free for 5 years so it’s just rego, insurance and fuel. Plus maybe one set of tyres.

• 

  FoxJump on 13/05/2020 - 07:26

  Sometimes NV lease companies add a hidden cut of the finance amount. It doesn't count as interest. It's not a setup fee. It's a magical and hidden kickback from the finance company to them

  Go to an online calculator that calculates repayments with a balloon amount. Punch financed amount, residual amounts, interest rate, loan period and confirm that the finance repayment matches. If not, question them where the difference is going.

  For example:
  Orix doesn't do this. They charge an interest rate and no hidden cut

  Maxis doesn't do this. They charge an interest rate and no more

  Autopia: they do this. An interest rate and a hidden 2 to 4% of the finance amount is tacked on top of your finance amount, as a financed amount, and you pay for it out of the repayments.

• 

  FoxJump on 13/05/2020 - 07:35

  +1

  Also, if you can afford the increased repayments do a 1 year novated lease. Then at the end, do an additional one year and keep on doing this for total of 3 years

  Why?
  Because one year at a time limits your loss greatly in case you lose your job.

  Also you'll get the most benefit on the first year. Very little second and third and by fourth it's probably not worth it.

  Also with one year at a time you can organise your own insurance saving more fees (maybe) just make sure you pick agreed value that covers the lease payout from day 0

  And if the NV lease company is stupid they'll make errors in your favour.

  Is after 1 year residual is 63.65%. If you extend to the second year then your total residual is now 54% (so the second your you only pay 9% of principal). If the NV company is stupid they may set you up as a new first year lease so your residual would be 0.6563 x 0.6563. Not sure if such a mistake is illegal but hey they did it. Just pretend you didn't see it :)

• 

  Kinko82 on 23/05/2020 - 19:54

  If possible, you should ask them for a amortisation schedule which will clear up everything. However, don't know if all companies will or can provide this.
  I find it odd that this type of schedule is not more common when it comes to getting quotes for finance. Don't know if it's intentional or not, as it will clearly show the borrower the total interest/fees over the loan term and allow borrowers to compare more easily. Definitely better than the comparison rate rubbish that is 20 years too old.