Novated Lease or Buy Outright?

[Propertynewby]

I am an equipment finance broker & have done the sums for several of my clients. There are too many variables to get a black & white answer, however if you are using the car for > 50% work purposes i would suggest a standard Chattel Mortgage. They represent about 95% of commercial motor vehicle loans these days and will give you the cheapest interest rate (currently 4.50%-4.99%).

If you do not qualify for commercial purposes i suggests standard UCCC consumer loan. Rates are about 0.5% higher (5.0%-5.50%) but they offer greater flexibility (e.g. ability to make extra repayments to reduce overall interest cost.).

My opinion is that since the legislation re statutory percentage flat rate of 20% came in after April 2014, the novated lease lost popularity. Also, you cannot pick and choose who you finances your vehicle and will be paying a premium on the rate (around 3-4% additional) depending on who you go through.

If you want me to run some numbers for you and spell out the variables feel free to PM me.

 

[srkp]

[/QUOTE]
I would say it comes down to your limiting factor in investing. If you are short of deposit then Novated lease isn't a bad idea. You are saving on the GST as well.
If your serviceability is the limiting factor then don't bother as brokers here said.[/QUOTE]


Apart from the limiting factor in investing, I would say Novated lease is always a better option.

Even if you are paying a higher interest rate than offset (November 2014 , I paid 6.96% with Leaseplan), remember it all comes out of your pre-tax money. Not just the interest, but also the principal. Even at 30% tax bracket, tax savings would offset the higher interest rate by a long distance. Add to that the GST you don't pay on any of the running expenses. Not to mention, cheaper insurance, tyres, service etc.

Of course, there is 20% FBT tax, most of which is offset by contributing after tax dollars towards running costs.

If you are running say around 15-20000 kms in a year, I can say the least guaranteed benefit would be to pay principal+interest from pre-tax money which is BIG.

Having said all the above and leased the car for last 10 years, I would be looking at getting off it soon since it will affect my serviceability (especially with new lending environment). Got a big IP land and construction loan coming up in the next 3-6 months.

 

[sydprop]

I have tried working out which is better and it is not easy as so many variables. I think the best if you have some cash is to just bite the bullet and use the cash - it may cost you interest if you remove this from your offset but there will be no loan affecting serviceability and hours saved not having to worry about calculations and considering if you are saving money or not. its hassle free.

Just go for a cheap a car as possible as they are a depreciating asset.

Terry hit the spot but .... If you don't buy a cheap car - My modelling and experience suggests that a 1 year novated lease then alternative finance is close to the optimum.

Key factors to play with are interest rate and hidden finance fees. When I worked for a bank - rates were close to mortgage rate but when I didn't they were about DOUBLE. Still made sense, just.

There is also a massive risk with long leases if you depend on tax advantages because you are not able to necessarily renovate to a new employer.

Equally, if you write off your car you are responsible for the repayments to term - make sure you are insured for this in some way. IMPORTANT.

Short leases impact serviceability but I would only do 1-2 years.