In essence, a novated lease adds a convenient and financially beneficial third party to the car-purchasing agreement, with your company joining you and the seller in a menage-a-car situation. While this will save you money in the long term, it’s a little difficult to grasp at first because you’re practically being asked to pay for something you’ll never actually possess.
On the bright side, “novated” sounds eerily like it has something to do with taxes and accountants, which it does; the good news is that it can really let you access money that would otherwise be taxed.
A novated lease means that your employer is a party to your vehicle purchase agreement, allowing you to pay for your vehicle as part of your compensation package (while also saving them money) by paying your car payments for you out of your pre-tax earnings.
Your income tax is subsequently computed based on your new lower wage, resulting in greater disposable money. Below, in this article, you can easily understand working, benefits, and why novated leases are bad sometimes.
Why Novated Leases Are Bad?
Of course, there is no such thing as a perfect bargain, and there are certain possible risks to be aware of when negotiating a novated lease. If you lose your work, for example, you may have to ask your new employer to take over the novated lease, or you may have to terminate the lease and pay what is owed, and you may be subject to further charges. Administration expenses are common with novated leases, and you’ll likely pay a higher interest rate on a novated lease than on a car loan.
Finally, while it’s a good idea to utilize a novated lease calculator or car loan repayment calculator to do your math, it’s best to talk to your accountant about getting a novated lease. Your accountant will be able to tell you how much advantage you’ll get based on your tax bracket.
Numerous Novated Lease Benefits
There are multiple novated lease benefits if your employer is willing to allow you to salary package your lease, novated leasing could be a great alternative to investigate. A novated lease might be extremely beneficial when it comes to planning for your automotive payments. You might be able to benefit from the tax advantages as well. For individuals searching for convenience and time savings, a novated lease can be a terrific solution.
Working Of Novated Car Lease
A novated lease is a 1 to 5-year employee-benefit arrangement in which you, your company, and a financier are all involved. Unless your employer specifies otherwise, you are not confined to any particular car type, model, or manufacture under a novated lease. In most circumstances, you have complete freedom to select the car you want to lease, whether new, old, or even your current vehicle. Best of all, because your repayments are partially financed with pre-tax income, you may wind up paying less tax and having more spare money.
Typically, you lease a car for a set period – usually at least two years, but sometimes three or five – and at the end of that period, you can either trade up to a new model or sign a new lease (ensuring that you’re never stuck with an old or uncool car for too long), or pay a pre-determined fee to buy and keep it if you’ve fallen deeply in love with it. Additionally, it is referred to as a “balloon payment” since it quickly grows to a much higher amount than you might expect.
Process of Applying for a Novated Car Lease
It is very simple to apply for a novated car lease. The process of applying for a novated car lease is as follows –
- Ask The Employer – To apply for a novated lease, first check with your employer to see if they provide this type of benefit. If you receive one as part of your wage package, there may be restrictions on the type and value of the vehicle, as well as other terms.
- Application – In most cases, you’ll have to apply to an outside organization and get approved for the salary sacrifice plan. The approval process is similar to that of other financial agreements in that the company will likely ask you for information about your income and expenses, as well as do a credit check.
- Setting Up Agreement Of Lease – To set up the lease arrangement, the financial business you or your employer chooses will normally communicate with you and your employer. Because you can’t salary sacrifice the cost of a vehicle after you’ve been paid, these arrangements must be signed before your payment is transferred into your account.
- Find A Vehicle – Notify the lease company once you’ve made your selection. They are usually in charge of the vehicle’s purchase and payback schedule. They’ll usually tell you how and when the car will be yours, as well as when the lease arrangement will begin. They will also provide you with a copy of the agreement, which will include the terms.
- Deduction Of Payments – Your employer will withdraw the repayments from your pre-tax earnings and pay them to the loan firm after the novated lease is set up.
