Finance Novated Lease Vs Car Allowance Vs Company Car?

Hi All,

Hopefully one of the gurus can assist there!

Income: Approx. $70k (+ Approx. $6k in Bonuses)

Options:
- 20k Car allowance per a year (increases gross to $90k) Eg. Use redraw from home loan or finance;
- 20k Car allowance to be used on a Novated Lease, Pretax;
- Company car (fully maintained), approx value new is 38k Volkswagen.

Other Factors:
- I do approx. 25,000KM a year;
- Car mostly used for work – 80-90%;
- It taking $20k option, my other tax claims will bring to lower tax bracket;
- If I leased or purchased, I would probably get a car about 30-35k. I'm not greedy and don't believe in showing off with a fancy European deprecating asset like a car! A Hyundai is fine to me.
- I'm also looking to increase my property portfolio so banks lending serviceability might be important and ability to borrow more. I currently own about 1 million in property and about 550k in debt so at my max for my income already.

What would you recommend and why? Ideally I would like to use the 20k to increase my cash flow and still end up with a car. Thanks for all your help!

 

Use their car. Won't effect your servicing and they carry risk and costs

 

Company car every time.
Absolutely no risk or expense to you.
Marg

 

Wouldn't I be able to increase my cash flow and actually end up with an asset partly paid off though as my income will rise 20k if I take the Lease option or purchase?

 

You could increase your income by $20k perhaps and then buy own car with cash. That might help serviceability

 

Don’t do a novated lease - they’re terrible for servicing.

 

Thanks for your reply. Can you explain as why say a novated lease is worse for serving than say a car loan or other debt to fund the purchase of the car?

 

because the lease also covers things like servicing and fuel that are accounted for in minimum living expense - it essentially double dips these expenses.

From a servicing perspective, don't finance the car at all. But if you do have to, a normal car loan is better.

 

When you apply for finance, don't you have to detail your expenses anyway? Thus, your costs associated with the car loan and general running costs would be higher as well and taken into account by the bank for servicing requirements.

I believe you can opt for a non maintained lease as well. Eg. Not salary sacrificing the running costs.

 

Will you get the $20k allowance if you just buy a car yourself?

 

That is correct. So my salary Increases $20,000 (obviously taxed @ about 32.5c) if I either purchase a car (Car Loan, own Cash or borrow against my properties) or do a Novated lease.

I'm trying to think the most effective way of doing this as essentially, could I use this extra 20k which is almost free money to acquire a car for free.

Eitherway, I have a couple of months to decide. I currently have the company car option (free in my salary) and need to clock up another 20,000km before I hand the car back and decide on what option

 

Consider this
a) set up a new split on the home loan
b) borrow to buy a car
c) claim a portion of this interest

Get a cheap a car as possible. e.g. $20,000 at 5% interest is just $1,000 per year before tax. You will be $19,000 per year ahead!

 

If I can get serviceability with my current lender Suncorp (I believe I'm near max) that is ideally what I would like to do - I have plenty of equity. With the logbook method, I could claim: fuel, all costs, interest (as stated above) and deprecation at the % my car is used for work. It would still be around 6-7K a year in car expenses (services, rego, insurance) and fuel. $20,000 will still be taxed with $6500, so only end up at $13500, maybe more if I can reduce my tax enough.

 

A novated lease typically includes all petrol, region, repairs, service etc.

Why they are crap for servicing is, obviously you pay more for a novated lease than you would a car loan (which is fair cos you get more stuff for it)

However, when you look at servicing, a bank sees a novated lease as a 'car repayment', but they also have their 'general cost of living' which includes things like nights out on the town, presents, medical expenses, it also includes rego, tyres, mechanic repairs.

So on their calculator, it would appear as if you are paying 2 x petrol, 2x tyres, 2 x servicing costs etc

Novated lease is crap for servicing.

 

Is this general cost of living a guideline the bank uses by default or is calculated on "ACTUAL" costs?

 

There is a minimum they will use, but if your actual living expenses are higher they will use this figure.

A car lease is a known amount of recurring debt so this will be listed over and above the living costs.

 

How is this different from a traditional car loan? You will have minimum repayments which are reoccurring and you will additionally have car expenses (which are potentially higher as they aren't pretax like with a novated lease).

 

Higher repayments when additional costs included in lease payments

 

Depends on what you are trying to achieve. I use a novated lease so I can pay for running costs net of GST out of pre-tax income. So it actaully puts more after-tax dollars in my pocket.

If you are looking to improve the optics of your finances to a lender, then take heed of the previous comments.

 

In a lot of cases, I'm not really convinced that a novated lease is always more cost effective. Probably sometimes, but the calculators they show you could easily be manipulated to show outcomes in favour of the lease.