There are many ways to obtain financing for a new car, and most people are familiar with the concept of personal loans to buy many types of transport, including cars, boats and motorbikes. One method that can be particularly useful for you as an employee, and for your employer too, is novated leasing. This type of leasing is often thought to be solely for business owners or for fleet cars, but that isn't the case. Novated leasing is an alternative way of financing a car that anyone can take advantage of, and can give tax benefits that significantly reduce the net cost of purchasing and running a car.
How does novated leasing work?
Novated leasing works when a lender facilitates an arrangement between you and your employer so you can divert some of your income before it is taxed towards buying your car and the costs of running it, which could mean considerable savings for you. You can benefit even if you don't own a business, only want the car for private use and have a low annual mileage. You could also use a novated lease to buy a used car, and you can take advantage of one whatever your level of income.
Why do people use novated leasing?
Saving money is the primary goal of most car buyers, and if you're saving tax at the same time, then it may well be worth exploring your options with lenders and your employer. When an agreement is set up between the three parties, your employer will make salary deductions for your regular lease payments that will be a combination of your income pre-tax and post-tax.
What are the main features?
Novated leasing means you can get the car you need while also saving tax. You can get your car running costs bundled into the lease deal, so as well as the purchase price, your single salary deduction can include fuel, insurance, maintenance and tyres. You can maximise your tax savings and cut out the hassle when you have to budget for your running costs. As with any form of car leasing, you should compare the options available and be comfortable about interest rates being charged, any fees or hidden expenses in the package, and that you can afford to have a part of your salary taken as a repayment every month.
What are the pros and cons of novated leasing?
Novated leasing can be an ideal way to purchase the vehicle that best suits your work and personal circumstances, while enjoying tax benefits. It's important to examine the small print of any deal, and to discuss with your employer and the finance company what the implications are in terms of interest rates and lease term. You should also check on the eligibility of the vehicle, the kilometres you will travel and other factors to ensure you will be entitled to tax concessions.