When it comes to buying a car, choosing the right financing option can save you money, time, and even stress in the long run. Two of the most popular methods are novated leasing and car loans Novated Car Lease Calculator.
Each has its own unique advantages and considerations, making it important to evaluate your personal circumstances before deciding. In this guide, we’ll dive deep into the ins and outs of both options, so you can feel confident in your choice.
What is a Novated Lease?
A novated lease is a salary packaging arrangement that allows employees to lease a car using their pre-tax income. It’s a three-party agreement between you (the employee), your employer, and a leasing company. Here’s how it works in simple terms:
Benefits of Novated Leasing:
What is a Car Loan?
A car loan is a straightforward financing option where you borrow money from a lender to purchase a car outright. You then repay the loan, typically in monthly installments, over a fixed period. Once the loan is fully repaid, you own the car outright. You can also choose to refinance a car with credit union loans later on to secure better interest rates or lower monthly payments, making long-term ownership more affordable.
Benefits of Car Loans:
Key Differences Between Novated Leasing and Car Loans
To help you make a more informed decision, here’s a side-by-side comparison of the two options:
One of the biggest advantages of novated leasing is its tax benefits. Since lease payments are deducted from your pre-tax income, your taxable income is reduced, potentially saving you thousands of dollars per year.
With car loans, there are typically no tax benefits unless the vehicle is used for business purposes. In such cases, you may be able to claim deductions for interest and depreciation.
Fringe Benefits Tax (FBT)
Novated leases are subject to Fringe Benefits Tax (FBT), which can offset some of the tax savings. However, there are strategies to minimize FBT, such as choosing a vehicle with low emissions or logging significant business-related travel.
Which Option is Right for You?
Choosing between a novated lease and a car loan depends on your lifestyle, financial goals, and employment situation. Here are a few scenarios to consider:
A Novated Lease May Be Best If:
A Car Loan May Be Best If:
Q: Can I novate a used car?
Some leasing companies allow novated leases for near-new cars, but most focus on new vehicles. If you’re interested in a used car, a car loan might be a better fit.
Q: What happens at the end of a novated lease?
At the end of the lease, you typically have three options:
Q: Are there any restrictions on the type of car I can choose with a novated lease?
Yes, most leasing companies have criteria for the vehicles they approve, often focusing on new or near-new cars with certain fuel efficiency or emissions standards.
Both novated leases and car loans are viable financing options, but they cater to different needs. A novated lease is ideal for those looking to save on taxes and simplify car expenses through salary packaging. A car loan, on the other hand, provides flexibility and ownership without employer involvement.
Before making your decision, assess your financial situation, employment stability, and long-term goals. Consulting a financial advisor or using an online novated lease calculator can help clarify the costs and benefits of each option.
As Director of Marketing at The Entourage, Ryan Terrey is primarily focused on driving growth for companies through lead generation strategies. With a strong background in SEO/SEM, PPC and CRO from working in Sympli and InfoTrack, Ryan not only helps The Entourage brand grow and reach our target audience through campaigns that are creative, insightful and analytically driven, but also that of our 6, 7 and 8 figure members' audiences too.
