Cars & Motorbikes Novated Vehicle leases

Anyone done these through thier employer?

Pros and cons of such if so?

Couple of workmates have done so for years, me, I've never been keen

 

It will ruin your serviceability

 

Works very well for cheap car with high expenses

You can do quite well on on a 12 month lease and get most of the aggregate total benefits from a longer lease in that first year. Can yield 3-4k benefit. Short term means you can manage serviceability issues in terms of timing (if it works for you!)

Interest rates can be a mugs game and you need to run the numbers on the actual finance lease (principle and payments for hidden charges like car brokering fees!). Use your own insurance with agreed value to cover any gap. CBA online finance rates are a good benchmark.

Longer leases have the risk that if you change job or stop work you will not be able to exit the deal without basically paying out the full term. I wouldn't assume you can take your lease to a new employer.

 

Seems both are using Maxxia

 

Nope but have seen a few interesting quotes from friends

You may well be pointing something out there though!

 

Hi Bunkai

You say works well with a cheap car with high expenses.
I suspect you are spot on.

Can you give an example of how this works. I can't get my head around actual examples.

 

Just remember that YOU own the car. If you leave your job, the car is YOUR responsibility. At the end of the lease YOU will be paying the difference if the sale price is less than the lease payout.
Marg

 

Watch for high balloon payments if you want to keep the car.

Getting out of them early can be a pain too. The payout figure for my wife's car at around 3 years of a 5 year lease was higher than the purchase price when new.

You can make the numbers look beneficial, I don't like them in practice.

 

Exactly. I paid out a lease about 2 years early to fix up serviceability.

 

Yep, absolute killer! We waited ours out as there was only 8 months left. Finally able to borrow again. I estimate it took 2 years off our ability to borrow.

 

Long leases are not good at all.

Ignoring the mechanism - but the basic concept is:

1. (upside) - You take out a car lease and your employer pays the rental payments on your behalf from pre-tax income. This is done via the salary sacrifice company who set a "budget" that is taken from your salary and drawn down from.

2. (downside) You have to pay (or offset) Fringe Benefits Tax which is based on the value of the car. The annual tax is the same for each of the first four full FBT years. FBT is only related to the initial car value.

3. (upside) - You draw down on your "pre-tax" budget to pay for any running costs. Rego, tyres, insurance, repairs/maintenance, extended warranty insurance etc.

When I say "lease" I mean an actual finance lease between you and a financier (e.g. Macquarie). This is arranged by the salary packaging firm who bundle it up into a "quote" for pre-tax dollars to be taken from your salary. This "layer" is where there are all sorts of claims about savings that are not right and where fees can be hidden. Devil is in the detail.

 

Get the employer to pay you a car allowance.

Keep a log book showing your business use.

Works out better (more often than not).

 

I've found it marginal as well. However if you want a classic Maserati and it needs a lot of repairs in the first 12 months....

 

+1 for killing serviceability.

We have two weeks left on our 3-year lease and can't wait to be free of it.

Our experience is financially the benefits have been negligible. Also didn't find all costs transparent on set up.

I think it depends on your situation/ vehicle etc. Just sharing our experience, not likely to do it again but aside from serviceability, hasn't been any harm done/ cost more than purchasing the car outright.

 

Hi guys
Just found this post as looking to learn about novated leases.
What do you mean by"kills serviceability"? Not really a car person so not sure what this means!
Answers appreciated.

 

Simple version. The more you earn the more you can borrow.
Having a novated lease "reduces your income" in the eyes of the lender.... thus your borrowing capacity is reduced.

 

Your serviceability is determined by a combination of your income and your financial commitments (liabilities). A novated lease is a financial commitment which reduces your disposable income, which intern reduces how much you can borrow. The same way a car loan is considered.

Novated leases generally cost more than car loans because they incorporate the car ownership and running costs in the payments. Lenders don't consider this and still include minimum figures in the 'transport' category of their living expenses. They usually don't give consideration to the tax benefits either.

From the lenders perspective a novated lease is like taking a car loan that's double what it would otherwise be. They calculate a much lower disposable income, which in turn reduces how much you can borrow by a significant amount, often hundreds of thousands of dollars.

 

I crunched the numbers a few years ago. If you have cash and can buy out right, it does not make sense because (in my case) the interest on the loan is 12%.

Might work for those on a highest tax rate and high car running expense and have to finance the car.

 

Try getting a quote on the interest rate, Maxxia for one are quite evasive on the subject. That should make you suspicious. Next, the lease is for 100%+ of the cost of the car, that means financing the whole cost, at crap interest rates. Next again, FBT is calculated at the original cost for years, not at the depreciating value. There's bugger all tax advantage, many hands out taking their cut along the way and all marketed as some sort of great tax saving arrangement so don't worry about the detail, or the fees.

Just not worth it.

To be fair, sometimes you can get a reasonable deal on the purchase with fleet discounts on common cars and you are buying ex-GST with costs ex-GST.

Still not worth it.

Oh and Maxxia are to salary packaging what teats are to a bull.

 

Yeah my wife did it through Maxxia too for her car. Its nice not having to worry about the running costs of the car but it is definitely way more expensive tuan its worrh.

I actually think the documents they provide at the start are quite deceptive. The interest rates are very hard to determine as mentioned but the tax savings that they proclaim are so generic and do not consider your personal tax situation.

I always say to clients, if they have the ability to finance it themsleves ia cash or split loan on homeloan then it will amost certainly be cheaper overall, plus it give you the flexibility to repay earlier if you wish etc.