Novated Lease for Car (PHEV) - Which Provider Gives Reasonable Interest Rates?

apple2016 on 30/01/2024 - 15:08
Last edited 31/01/2024 - 08:17 by 1 other user

Hey OzBargain family, I am looking to get a new car.

Still not yet convinced by the EV charging infrastructure and hence decided to go the PHEV which still has the FBT exemption. Now after getting the quote from Novated Lease Company, the interest rates look extremely high. My reasoning of paying about $15k more for PHEV was that I will be able to save more if I do a novated lease. But looks like all the tax benefit only goes to the lease provider as interest. Instead of paying tax, I am paying interest.

Is there any Novated Lease Provider that still goes will reasonable interest rate?

I am looking at 5 year lease. The car costs about $93k

Added the Novated lease quote details
Cost of car : $93,100
Lease Term : 60 months
Annual Kms : 15000 (not sure if this makes any difference)
Residual (ex GST) : $24,447.32
FBT Base value : $89,301.50
FBT Excempt Vehicle
Insurance, fuel, rego, service costs are excluded from this quote.

Annual Salary : $160,000
Pre tax deduction : $391.65 (per week)
Post tax reduction in salary : $238.91 (per week)

My calculation on total cost for total ownership after five years

391.65 X 52 X 5 + 24,447.32 + 2444.73 = 128,721.02

If it was a loan by RACV

loan amount = $93,100 (so that its similar to lease)
interest rate = 8%
loan term 60 months
monthly repayment = $1,887

total = $113,220

If interest rate is 13.5%
monthly repayment = $2,142
Total = $128,520

I am just trying to understand if this is normal with all Novated Lease providers or do some have a better rate?

Automotive Car Novated Lease SUV Volvo

Comments

  • Gdsamp on 30/01/2024 - 15:16
    +3

    the sums generally very rarely work out for Novated lease, as you appear to be finding.

    does the car cost ~50% of your income?

  • spackbace on 30/01/2024 - 15:16
    +1

    Interest rates can depend on your personal circumstances

    What rate were you quoted?

    • apple2016 on 30/01/2024 - 15:53

      Lease Lab (Employer preferred) are saying the comparison rate is 9.5% but I feel the actual interest rate is closer to 12%
      They are not quoting the actual interest rate.

      • spackbace on 30/01/2024 - 15:54

        Comparison rate is higher than the interest rate, as the comparison rate includes finance fees

        So there's no way the interest rate is 12% if comparison is 9.5%

        • apple2016 on 30/01/2024 - 15:57

          Usually yes. But I believe, they are calculating the comparison rate after tax deductions. Hence its lower.

        • djkelly69 on 30/01/2024 - 16:13
          -4

          Leases don't actually have interest rates, so they generally quote some sort of made up equivalent.

          • apple2016 on 30/01/2024 - 16:29
            +1

            @djkelly69: Ultimately they pay for the car initially and I pay them back monthly for the term of the lease. They charge a % for this. I just called it interest rate.

          • Extreme on 31/01/2024 - 08:46

            @djkelly69: @djkelly69 novated leases DO have interest rates.

            They actually include a loan. Which is usually arranged by the novated lease company. This loan forms part of the lease.

            There are options to go down the path of a self managed lease and arrange your own finance.

            • djkelly69 on 31/01/2024 - 12:32
              -2

              @Extreme:

              They actually include a loan. Which is usually arranged by the novated lease company. This loan forms part of the lease.

              The basic setup for a NL is that a finance company or bank purchases the car you want, and you lease it from them for an agreed period. The lease repayments are then made via a salary-packaging arrangement you have with your employer. A NL provider arranges and manages all of this on your behalf.

              I am not sure which part of this you are calling a loan?

              You can calculate 'effective interest rates' for leasing so you can do some sort of comparison between various providers, but there is no loan so no interest is being paid, so there is no actual interest rate.

              • Extreme on 01/02/2024 - 07:08

                @djkelly69: I’d love for you to explain why each & every NL I’ve had included an interest rate on the lease documentation then.

                As part of the finance, there is a total amount financed at a set percentage rate. This is in effect a loan. The financer takes out a loan to finance the vehicle that is provided under the novated lease.

                If one wishes to end a novated lease early, that loan/finance is factored into the costs to end the lease early.

                It also takes into account the required balloon payments at the end.

                • djkelly69 on 01/02/2024 - 09:43
                  -2

                  @Extreme:

                  I’d love for you to explain why each & every NL I’ve had included an interest rate on the lease documentation then.

                  As mentioned, you can calculate an 'effective interest rate'. I am unsure why it would be included in your lease documentation. It is certainly not in mine, which mainly has the term, rent instalments, residual, fees, terms, etc.

                  The financer takes out a loan to finance the vehicle that is provided under the novated lease.

                  No they don't. They purchase the vehicle and lease it to you. Even if they were borrowing money to purchase the vehicle, it is unrelated to them leasing it to you.

                  If one wishes to end a novated lease early, that loan/finance is factored into the costs to end the lease early.

                  The payout should just be the remaining rent instalments, plus an early termination fee and any break costs.

  • p1 ama on 30/01/2024 - 15:33
    +1

    The car costs about $93k

    Do you need a $93K car? If you want an luxury car, then that's the price you pay. Interest rates are higher when you need to borrow more, and for more expensive cars because they face significantly higher depreciation risk vs. cheaper cars.

    FWIW what car are you looking at? I wouldn't pay $93K for a PHEV when you could get a decent EV for much not much more than half of that from many of the major manufacturers - Tesla, BYD, Hyundai, Kia…etc. take your pick.

    • apple2016 on 30/01/2024 - 16:00

      I did look at EV, but decided against it due to personal preferences and driving habits. I usually prefer driving around country towns instead of highways etc where charging infrastructure is still not adequately present. Hence the PHEV

      • Gdsamp on 30/01/2024 - 16:11

        CX60 PHEV?

    • boomramada on 30/01/2024 - 16:03
      +1

      OP just want to jump into the EV high class with yet a another form of money borrowing called a Novated Lease :)

  • deme on 30/01/2024 - 15:40
    +8

    ffs stop trying to look rich by renting an expensive car.

    • MS Paint on 30/01/2024 - 15:42
      +5

      Looks like I'm teaching you well son. I suggest the ffs in upper case for more impact. FFS.

      • Gunnar on 30/01/2024 - 16:11
        +1

        FFS another novated lease question!

        Better?

        • MS Paint on 30/01/2024 - 16:17
          +2

          Yes. You're making great progress. Keep up the good work. ⭐

  • Jake D on 30/01/2024 - 15:41

    Which lease provider does your employer allow you to use?

    • apple2016 on 30/01/2024 - 15:55

      The preferred option is Lease lab. But I will be able to convince them for others as well.

  • deme on 30/01/2024 - 15:46

    I am looking at 5 year lease.

    Will you still be at the same employer in 5 years?

    • apple2016 on 30/01/2024 - 15:54

      Its likely unless something drastic happens

  • Euphemistic on 30/01/2024 - 15:57

    The interest rate is only part of the picture. The total cost is what you really want to knoe.

  • srsparky on 30/01/2024 - 16:28
    +1

    $93k is over the "luxury car tax" level which means the FBT exemption doesn't apply.

    ATO

    • apple2016 on 30/01/2024 - 16:30
      +1

      Thats drive away cost.
      FBT Base value : $89,301.50
      This is under LCT threshold

  • brendanm on 30/01/2024 - 18:03
    +8

    $630 a week for 5 years, then pay $27.5k at the end of it. Lol. Lmao even.

    • MS Paint on 30/01/2024 - 18:21
      +2

      That won't make cents. Cheers

      • Pelicannn on 30/01/2024 - 18:25
        +2

        If it don’t make cents it don’t make dollars.

        OzB proverb - 2006

  • Drakesy on 30/01/2024 - 18:03
    +2

    Get their real interest rate out of them.

    Then you'll get full transparency.

    Literally pulling money out of taxpayer's hands and putting it into their pockets.

  • Pelicannn on 30/01/2024 - 18:31
    +4

    Unfortunately you’ve found the major problem with novated leasing - companies who provide the service are charging you buckets in fees and your tax savings are going direct to them.

    When I looked at one about two years ago it was a $400 broker fee, a $550 set up fee and a $35 admin fee every fortnight ($912 a year) so in the first year there was $1860 in fees alone.

    Convert that to consider those fees effectively as additional ‘interest’ and the comparison rate I was getting was close 16%. This was before RBA rates started rising. When I queried it, they said they would waive the broker fee and setup fee. I still walked away.

    If the government was serious about this as a method to improve take up of such vehicles there would be an ability to manage it yourself and skip the middlemen lining their pockets by making voluntary payments from your pre-tax salary or from packaging money into an account directly from PAYG tax dollars.

  • freefall101 on 30/01/2024 - 19:14
    +1

    I am just trying to understand if this is normal with all Novated Lease providers or do some have a better rate?

    They have different rates. Commbank online calculator says 8.59% for novated leases. Just depends if you can use a loan through them.

    Novated lease companies are a scam, but they tend to lock in employers because it's simpler for them to use a company than actually do the payroll/accounting side of things themselves. I have about a 9% rate (from when interest rates were lower) but I simply had no option to do a novated lease through my provider of choice.

    You also need to look at it that your post-tax payment will be under $90k, whereas your RACV loan will be much higher. So it might be worth it anyway.

    • apple2016 on 30/01/2024 - 21:15

      It looks good when compared with RACV loan at 100%. I can easily chip in about 20% and then there is not much differences. Instead of paying tax, i would paying a private company!

      • Euphemistic on 31/01/2024 - 12:08

        If you are just going to be paying a private company instead of tax i think id rather you paid the tax.

  • rambutann on 30/01/2024 - 20:50

    I am going through the process with an EV.

    I personally ran the numbers on a 30k ICE SUV in cash vs. a 75k EV on a novated lease and found that they were both equal from a cashflow perspective (when i broke the 30k down into 6k per annum costs), but by the time you account for selling both cars after 5 years (and paying the balloon payment), going the EV was significantly cheaper.

    I would suggest shopping around. Different companies do offer different prices. My work recommended company was around $25 a week more expensive (post tax).. so thats over a grand a year more for the same thing. My company was happy to accept another novated lease company.

    I have no idea what the interest rate is. They probably all pay the same amount to the banks, its just a matter of how much of a markup they put on it. Their management fee is not the only way they are making money.

    • apple2016 on 30/01/2024 - 21:17

      @rambutann Could I know which company you ended up going with?

      • rambutann on 30/01/2024 - 21:48
        +1

        Car-bon.com.au

        Still yet to complete the process but so far it has been good. There may even be cheaper ones out there. I definitely thought they might all be a similar price but that doesn't seem to be the case..

    • JDMcarfan on 18/08/2024 - 13:59

      You still think the value after 5 years for the EV makes it cheaper now. Think you’ll find that depreciation has now hit the EV market and popped the bubble

  • Typical16-bitEnjoyer on 30/01/2024 - 22:17
    -3

    You could buy a used Camry and buy a PROPERTY for the cash you will be wasting.

    Do you think your family/friends care when you rock up and say "Eyyyy check out my new PHEV penile extension that I pay a fortune to 'rent'"

    • apple2016 on 30/01/2024 - 23:32

      @zeggie Thank you so much for your incredibly insightful contribution to my life. I don't know how I would have survived without your invaluable input.

      • Typical16-bitEnjoyer on 31/01/2024 - 08:20
        +1

        +$128k over 5 years, completely locked in, then a further ~$26k to keep it or you hand it back for nada.

        Be curious to know how any of those figures make prudent financial sense compared to your salary? Do you also be have a gigantic child that cannot fit in a regular car? https://www.ozbargain.com.au/comment/14834177/redir

  • K2THEQB on 31/01/2024 - 07:40

    You mentioned this post tax deduction;
    Post tax : $238.91 (per week)

    If the car is under the LCT threshold and qualifies for the exemption the entire deduction should be PRE-tax.

    Get Lease Lab to fix that and it will increase your PAYG and GST savings.

    Did they include any additional products in your lease cost? Scratch and dent or lease protection insurance etc? These are optional items that get built into the finance payment that might not always be disclosed so can just have the appearance of being additional interest charges and you can remove them.

    Hope this helps. 👍

    • apple2016 on 31/01/2024 - 08:18

      Sorry its the reduction in take home salary after the deduction.
      There is no post tax deduction

      • K2THEQB on 01/02/2024 - 10:06
        +1

        Ah sorry I misunderstood

        Tell Lease Lab you want them to put the finance through Macquarie Leasing (they should have an accreditation with them). Macquarie caps the commission to the leasing company and also puts the effective rate and any fees on the lease documents so you will know with certainty what you’re paying.

        If they won’t then Auto UX would be worth getting a comparison from as they use Macquarie.

        • apple2016 on 01/02/2024 - 15:50

          Thanks, will look into that

  • Seksistefan on 31/01/2024 - 10:14
    +1

    @apple2016 As it happens, I've bought a PHEV Outlander through novated lease last December (this morning i had my 1.5k km service).

    There is a few things i don't get - PHEVs are supposed to be exempted from FBT (i'm pretty sure the exemption still applies, soon to be scrapped though), so why post-tax deductions? I'm not paying any, everything, and i mean 100% is pre tax.

    As far as the novated lease companies go, they will never tell you what is the exact %, they will try to keep you in the dark and only give you the combined figure, or just rough approximation. Don't trust them in that regards.

    Does it work financially - I must say, yes, I could never afford a new car otherwise.

    want details - ping me.

    • Typical16-bitEnjoyer on 31/01/2024 - 12:08
      -1

      I could never afford a new car otherwise.

      How so?

    • SlickMick on 31/01/2024 - 12:14

      This is my experience also.

      Should be no after-tax deduction for PHEV. This quote doesn't seem to acknowledge the FBT exemption.

      We chose the novated lease over paying cash that could otherwise be paying mortgage. I still think it was worthwhile, though the lease costs truly erodes all the tax benefits.

    • changyang1230 on 31/01/2024 - 17:45

      OP’s “post tax” line is “what the pre tax is equivalent to post tax”; not in addition to the pre tax.

      OP is on 37+2% tax bracket so if you do the calculation you would find that it fits perfectly.

      391.65*(1-0.39) = 238.91

    • apple2016 on 01/02/2024 - 15:51

      Sure will send you a message!

  • ColtNoir on 31/01/2024 - 18:30

    Stay below the $80k threshold. For a full EV a quote I got, everything was pre-tax.

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