Advantages and Disadvantages of Getting a Used Car on Novated Lease

When you’re making a decision, especially involving big finance, you should always get all your pro’s and con’s established first. It’s one of life’s little rules, and it’s the reason people go on dates before getting married, or read the job contract first. I mean, sure, you might be the intrepid jump-with-both-feet type, but that’s better saved for the fun stuff, like that tattoo you got in Bali. With this in mind, we have assembled a few points for you to ponder, so when you have finalized your used car novated lease, you know that you were informed enough to make the best decision.

1         Mid-lease payouts are an understood risk of a novated lease, as while there is no immediate cost for you boss to sign off, the lender will recover all fees and interest upfront. Therefore, if you decide to terminate your lease before the full repayment term is up, this payout could be more than you’re expecting. Become aware of the terms of your lease, especially if you think this may be a possibility- for example, if you’re hoping to get a new car before then. 

2         As it is attached to your job contract, if you lose your job then the repayments come directly back to you, and you’ll be liable for completing the payments. You can talk to your new employer about taking over the novated lease agreement, but the easiest idea is to try not to lose your job.

3         All said and done, it is your car. So you don’t get to throw it back to the company once you’re done, or leave the car to be your employers problem. Although through the lease the employer is basically paying the car on your behalf, it’s still your money they’re spending. However, there are insurance options to help you out if a problem arises with your employment, and novated lease is transferrable, so you still have a bit of freedom if a problem arises.

4         At the end of the lease there is an end of lease residual, to payout and settle the lease. This is usually calculated by a percentage of the vehicles capital value, as deigned by the Australian Tax Office, and regardless of the model of car you have your eye on, the percentage is consistent throughout the term, so if the market value isn’t sufficient to cover the payout then this is your liability. On the flipside, if the residual is less than the car value, you can pick up the difference in a tax-free sum. Make sure that you understand the residual liability of your car before entering the lease agreement; the further you travel, the greater danger of a surprise shortfall, but the more potential for tax savings. This also has an opportunity to be offset through shortfall insurance.

5         All said and done, it sounds complicated, but the benefits are worth it if you play your cards right and sweet-talk the boss a bit. You can get a novated lease on a used car, or a convertible, or a family wagon. The most important part to consider is to find a lender with your best interests in mind, who can talk you through all your options. At Allcredit we are proudly Australian operated, with loan experts who can cut through the jargon and find the best deal for you, every time.