Do either of you have a HECS/HELP debt?
If so, be wary of novetal leases. Your HECS/HELP repayments will still be calculated on the gross income leaving you with a bill at tax time (unless you pay extra HECs repayments to make up the shortfall
Yes, we both have HECS debt. I had a similar scenario when i salary packaged my superannuation to buy a home and i owed $1000 at tax time.
Since we don't have enough savings for a car, i don't foresee us having enough money for a new car for at least 1 to 1.5 years.
I understand. It comes down to what your goals are. Can you buy the car at the end of the lease? If so, it might work for you assuming you can also manage the shortfall in HECS repayments.
I'm working to get of fossil fuels but I'm years away from ditching the old combustion engine for an EV. My shit box will do me until then. My goals are different though and I rarely use my car. If I needed the car more frequently, I may need to go down the lease path too
Yes we can buy it. We would pay $22000 during the lease and then a bulk payment of $25,000 after the year ends. We will have the money for the bulk payment at the end of the year, but we just don’t have the funds right now.
Myself and my partner earn a combined $150,000 a year so we have no issues saving. The problem is we need a car soon and don’t have any savings right now.
Be prepared for eventuality that you won't have money for bulk payment. Someone loses the job, there are other costs, more important.
If you could save 25k by the end of the year why didn't you do it in 2022?
And note that in 2023 you will have to pay 47k. On 150k income (gross or net) that's decent amount of money!
We did save it and used the down deposit on our first house. We initially put aside $20,000 after the house purchase but we had to spend $15,000 within the first few weeks on vet bills, vehicle costs, house maintenance etc. We’re now sitting with around $5,000 total in our accounts and a dying car.
That’s ok - we’ll save up a little and hopefully have a deposit for a used car next year. Hopefully my car doesn’t crash yet!
Surely you can find something decent used for half that cost - seems like a big commitment for somebody earning only $75k a year (especially with the large balloon payment at the end of the year that you still need to account for).
Would love to know what the interest rate on their finance they're offering you - last time I spoke to a company, they wanted 14.3% on the lease finance! Eats up any potential savings rapidly.
The problem is we don't have enough savings. We just bought our first home and we had to spend quite a lot of our residual savings on unexpected things.
Between me and my partner, we can save enough for the balloon payment after a full year. We just don't have anything to work with right now.
I will double check the interest rate and get back to you :)
If you just bought your first home and can't afford to buy a $20k car in cash I would reconsider whether this $40k loan/lease arrangement is really going to help you. I'd personally want all the cash that I could have.
I earn a combined $150,000 with my partner, so we can well afford the payments and save money on our house at the same time. It just came down to whether or not i was getting screwed over because i didnt understand how novated leases worked.
That's awesome but if you can't afford a $20k car in cash, it would suggest that you aren't that great at saving yet.
Edit: My point is you have new house payments which are likely in excess of the rent you were paying before, they're increasing with the rate rises, you don't have savings and you're thinking about limiting you excess money further. I think that's asking for unecessary stress.
That’s very fair. Our mortgage has gone up substantially so we are paying more than we were before ($1200 per fortnight, up from $900) thanks to the increases.
I will probably look to save a little before we look into a car lease/purchase.
You got it. If you think the increase of $300 fortnight hurts, add this $40k lease and you'll be down a further $600 a fortnight. You would have about 50% of your income going to a house and car.
I don’t have the exact maths handy but I worked out a saving of ~$2500pa for a novated lease v traditional loan. This was on a $83,000 car on a $275k salary. This calculation didn’t factor In depreciation
The whole benefit of a Novated lease is to include the running costs.
DO NOT REMOVE THESE. You get back anything you don't spend, but removing running costs completely removes the main benefit of a Novated lease..
Also, 1 year lease is NOT as good as a longer lease.
Upfront fees and brokerage is amortised into the loan, so you end up paying these over a short period, causing your comparison rate to be substantially higher for a shorter lease than a longer one..
It's so confusing because I see so many posts saying a shorter lease is best, and to remove the running costs. That didn't make much sense to me though, I would have thought using the running costs for a longer period of time would be the better option.
Thanks for your help, I'll look into longer leases.
So there is a set $ amount per year that needs to be paid post tax.
Everything else is pre tax, so the more you can include, the more tax savings you get.
Anything you budget for but don't spend is refunded.
The leasing company doesn't set prices (actual expense) for running cost... You have choice where you get your insurance, fuel, tyres etc
So if you manage to get fuel at the bottom of the price cycle, it's just more savings in your pocket!
Anybody who tells you you're better off removing running costs has absolutely no idea what they are talking about and you should immediate end the conversation.
People will tell you, based on the numbers that a shorter lease is better, but this is only true if fees and brokerage are charged each and every year... They are not, they are charged once, at the start, so better to pay once over 5 years than 5 times over 5 years...
Okay i sort of understand that. If anything, a 5 year lease is much better for us anyway.
I’m a little confused by the cost though.
So if I’m paying a total of $15,205.32 per year for the car, then after 5 years, wouldn’t i have effectively paid significantly more for the car than it would have been to purchase it outright?
In my case, it was a total of $70,000 and then an extra $10,000 owing at the end of the lease. And like you said, after a single year of the lease, it would instead have me pay $22,146 per year and $25k to buy the car outright at the end. but in that case, i would only pay around 48k total instead of the 80k.
I’m probably misunderstand something there.
This is a bit old and the rates will be different (it is also top tax rate) but have a look at it and compare 1 year lease to 5 year lease.
The savings will be smaller as you are not top tax bracket and it is a cheaper car. Either way, still better with a 1yr novated lease.
https://www.reddit.com/r/AusFinance/comments/v505o7/novated_leasing_an_ev_to_commute_newcastle_to/ib78mwz/
Please be aware, Cdizzle is assuming you will get a new 1 year lease each year and that is why they are saying it is more expensive. I am assuming you want to get a car and want to buy it in the cheapest possible way. A 1 year lease is the cheapest way to buy an ICE car.
Just to be clear, if you want to get a PHEV or an EV a 5 year lease is far far far cheaper.
Unfortunately majority of the EV cars are backlogged 2-3 years so it doesnt seem feasible to wait that long for what we need. That makes sense to me, but maybe it does seem better to find an available EV and go for the 5 year lease for the cheaper and better option.
They are wrong about the longer leases. Look at my reply to them as I explain why. They are correct in saying that removing running costs is bad. The goal is to minimise the sticker price of the car (do not pay for tinting or any extras like to be done until after you have the car - I understand you are buying second hand, but it is the general rule) but at the same time you want to get as many costs as you can (not things you wouldn't get, only the things that you would get normally) on to the lease as these will, in general be paid for with pre-tax money.
I would be buying it new and a 2023 model, seeing as for some reason its cheaper to buy a 2023 model that a 2018-2022 model.
My goal would be to own a car ASAP. That’s why i thought buying it over a 1 year frame would be best, otherwise i would end up paying +80k for a 5 year lease when you combine all the payments over that time.
So with the price of the lease over a year, combined with the outright payment at the end - which we can afford by that time, i dont see why would wouldn’t go for the 1 year lease. It just makes the most sense to me, but like i said, i don’t know anything about this area so i wanted to make sure there wasn’t something i was missing or i was doing it the wrong way.
You are very very wrong about a 1 year lease being not as good as a longer lease.
You are correct about trying to include as many costs as possible into the novated lease.
I don't want to spend ages but I will try to explain quickly why you are incorrect.
A novated lease is a fringe benefit. In order to avoid fringe benefit tax every person (other than people that use their vehicle for work more than 80% of the km) and their dog uses the statutory formula method to avoid FBT.
How the method works is that each year of the lease the employee must contribute 20% of the original cost of the car (minus gst) in post tax contributions. Any costs greater than this 20% can be paid for from pre-tax money.
The next bit of information you need is the balloon payments schedule. In a 1 year lease you can pay off ~35%, 2 year ~44%,3 year ~53%, 4 year ~62.5%, 5 year ~72% from the principle cost of the car.
So with a 1 year lease you pay 35% of the cost of the car + all costs and only 20% has to be paid post tax. This means you are paying 15% of the principle of the car in pre-tax money + all costs. 2 year lease only 4% of the car + costs is paid pre-tax, 3 year negative 7% + costs is paid pre-tax and it continues to get worse from there.
The slight tax savings you get is outweighed by the fact that brokerage and fees are amortised over 12 months rather than 60.
Further, costs such as tyres which occur maybe once in 5 year term cannot be covered as you won't actually spend the money.
I used to work in this field and can 100% tell you that 5 x 1 year leases is far far far more expensive than 1 x 5 year lease...
I don't think you get it. If the same fee is done over 1 year instead of 5 then you are moving MORE of the cost into pre-tax money.
Also, I am not suggesting you do 5 x 1 year leases. The OP wants to buy a car. They will be keeping the car at the end. I am saying if you want to purchase a car and keep it then buying it on a 1 year lease is far superior to a 5 year lease.
For what its worth, I've never got a car I couldn't pay cash for. So in the early years of first home etc. we had rather 2nd hand cars. But over the years the cars got better and now own our home and have 4 nice cars (1 SUV, 1 Runabout, 1 HP convertible, and a classic American), 2 motorbikes and a large-ish boat (lives in the water) and none on any loan. The cost of ownership of a car is bad enough without adding very high-interest rate on top.If you can afford $1300 a month, then wait and get something cheap. Put the $25K you'll have at the end of the year on your mortgage. This will save you a lot in the long term, like $80K-90K lot, over the term of the loan, maybe more. The money you save there will get you a new car in the future for free if you think of it that way. Worked for me 
Do either of you have a HECS/HELP debt? If so, be wary of novetal leases. Your HECS/HELP repayments will still be calculated on the gross income leaving you with a bill at tax time (unless you pay extra HECs repayments to make up the shortfall
Yes, we both have HECS debt. I had a similar scenario when i salary packaged my superannuation to buy a home and i owed $1000 at tax time. Since we don't have enough savings for a car, i don't foresee us having enough money for a new car for at least 1 to 1.5 years.
I understand. It comes down to what your goals are. Can you buy the car at the end of the lease? If so, it might work for you assuming you can also manage the shortfall in HECS repayments. I'm working to get of fossil fuels but I'm years away from ditching the old combustion engine for an EV. My shit box will do me until then. My goals are different though and I rarely use my car. If I needed the car more frequently, I may need to go down the lease path too
Yes we can buy it. We would pay $22000 during the lease and then a bulk payment of $25,000 after the year ends. We will have the money for the bulk payment at the end of the year, but we just don’t have the funds right now. Myself and my partner earn a combined $150,000 a year so we have no issues saving. The problem is we need a car soon and don’t have any savings right now.
Be prepared for eventuality that you won't have money for bulk payment. Someone loses the job, there are other costs, more important. If you could save 25k by the end of the year why didn't you do it in 2022? And note that in 2023 you will have to pay 47k. On 150k income (gross or net) that's decent amount of money!
We did save it and used the down deposit on our first house. We initially put aside $20,000 after the house purchase but we had to spend $15,000 within the first few weeks on vet bills, vehicle costs, house maintenance etc. We’re now sitting with around $5,000 total in our accounts and a dying car. That’s ok - we’ll save up a little and hopefully have a deposit for a used car next year. Hopefully my car doesn’t crash yet!
Untrue. Unless it recently changed. I had a novated lease and HECS and never had to pay extra.
Absolutely correct!
https://www.reddit.com/r/AusFinance/comments/100j03y/novated_leasing_ama/?utm_source=share&utm_medium=android_app&utm_name=androidcss&utm_term=1&utm_content=share_button
Hadn't found this one. Thanks a lot for the link.
Surely you can find something decent used for half that cost - seems like a big commitment for somebody earning only $75k a year (especially with the large balloon payment at the end of the year that you still need to account for). Would love to know what the interest rate on their finance they're offering you - last time I spoke to a company, they wanted 14.3% on the lease finance! Eats up any potential savings rapidly.
The problem is we don't have enough savings. We just bought our first home and we had to spend quite a lot of our residual savings on unexpected things. Between me and my partner, we can save enough for the balloon payment after a full year. We just don't have anything to work with right now. I will double check the interest rate and get back to you :)
If you just bought your first home and can't afford to buy a $20k car in cash I would reconsider whether this $40k loan/lease arrangement is really going to help you. I'd personally want all the cash that I could have.
I earn a combined $150,000 with my partner, so we can well afford the payments and save money on our house at the same time. It just came down to whether or not i was getting screwed over because i didnt understand how novated leases worked.
That's awesome but if you can't afford a $20k car in cash, it would suggest that you aren't that great at saving yet. Edit: My point is you have new house payments which are likely in excess of the rent you were paying before, they're increasing with the rate rises, you don't have savings and you're thinking about limiting you excess money further. I think that's asking for unecessary stress.
That’s very fair. Our mortgage has gone up substantially so we are paying more than we were before ($1200 per fortnight, up from $900) thanks to the increases. I will probably look to save a little before we look into a car lease/purchase.
You got it. If you think the increase of $300 fortnight hurts, add this $40k lease and you'll be down a further $600 a fortnight. You would have about 50% of your income going to a house and car.
I don’t have the exact maths handy but I worked out a saving of ~$2500pa for a novated lease v traditional loan. This was on a $83,000 car on a $275k salary. This calculation didn’t factor In depreciation
The whole benefit of a Novated lease is to include the running costs. DO NOT REMOVE THESE. You get back anything you don't spend, but removing running costs completely removes the main benefit of a Novated lease.. Also, 1 year lease is NOT as good as a longer lease. Upfront fees and brokerage is amortised into the loan, so you end up paying these over a short period, causing your comparison rate to be substantially higher for a shorter lease than a longer one..
It's so confusing because I see so many posts saying a shorter lease is best, and to remove the running costs. That didn't make much sense to me though, I would have thought using the running costs for a longer period of time would be the better option. Thanks for your help, I'll look into longer leases.
So there is a set $ amount per year that needs to be paid post tax. Everything else is pre tax, so the more you can include, the more tax savings you get. Anything you budget for but don't spend is refunded. The leasing company doesn't set prices (actual expense) for running cost... You have choice where you get your insurance, fuel, tyres etc So if you manage to get fuel at the bottom of the price cycle, it's just more savings in your pocket! Anybody who tells you you're better off removing running costs has absolutely no idea what they are talking about and you should immediate end the conversation. People will tell you, based on the numbers that a shorter lease is better, but this is only true if fees and brokerage are charged each and every year... They are not, they are charged once, at the start, so better to pay once over 5 years than 5 times over 5 years...
Okay i sort of understand that. If anything, a 5 year lease is much better for us anyway. I’m a little confused by the cost though. So if I’m paying a total of $15,205.32 per year for the car, then after 5 years, wouldn’t i have effectively paid significantly more for the car than it would have been to purchase it outright? In my case, it was a total of $70,000 and then an extra $10,000 owing at the end of the lease. And like you said, after a single year of the lease, it would instead have me pay $22,146 per year and $25k to buy the car outright at the end. but in that case, i would only pay around 48k total instead of the 80k. I’m probably misunderstand something there.
You're missing the running costs...
This is a bit old and the rates will be different (it is also top tax rate) but have a look at it and compare 1 year lease to 5 year lease. The savings will be smaller as you are not top tax bracket and it is a cheaper car. Either way, still better with a 1yr novated lease. https://www.reddit.com/r/AusFinance/comments/v505o7/novated_leasing_an_ev_to_commute_newcastle_to/ib78mwz/ Please be aware, Cdizzle is assuming you will get a new 1 year lease each year and that is why they are saying it is more expensive. I am assuming you want to get a car and want to buy it in the cheapest possible way. A 1 year lease is the cheapest way to buy an ICE car. Just to be clear, if you want to get a PHEV or an EV a 5 year lease is far far far cheaper.
Unfortunately majority of the EV cars are backlogged 2-3 years so it doesnt seem feasible to wait that long for what we need. That makes sense to me, but maybe it does seem better to find an available EV and go for the 5 year lease for the cheaper and better option.
To clarify re the EV - a 5 year lease is far cheaper than buying outright. I am not saying that a 5year EV novated lease is cheaper than an ICE.
They are wrong about the longer leases. Look at my reply to them as I explain why. They are correct in saying that removing running costs is bad. The goal is to minimise the sticker price of the car (do not pay for tinting or any extras like to be done until after you have the car - I understand you are buying second hand, but it is the general rule) but at the same time you want to get as many costs as you can (not things you wouldn't get, only the things that you would get normally) on to the lease as these will, in general be paid for with pre-tax money.
I would be buying it new and a 2023 model, seeing as for some reason its cheaper to buy a 2023 model that a 2018-2022 model. My goal would be to own a car ASAP. That’s why i thought buying it over a 1 year frame would be best, otherwise i would end up paying +80k for a 5 year lease when you combine all the payments over that time. So with the price of the lease over a year, combined with the outright payment at the end - which we can afford by that time, i dont see why would wouldn’t go for the 1 year lease. It just makes the most sense to me, but like i said, i don’t know anything about this area so i wanted to make sure there wasn’t something i was missing or i was doing it the wrong way.
You are very very wrong about a 1 year lease being not as good as a longer lease. You are correct about trying to include as many costs as possible into the novated lease. I don't want to spend ages but I will try to explain quickly why you are incorrect. A novated lease is a fringe benefit. In order to avoid fringe benefit tax every person (other than people that use their vehicle for work more than 80% of the km) and their dog uses the statutory formula method to avoid FBT. How the method works is that each year of the lease the employee must contribute 20% of the original cost of the car (minus gst) in post tax contributions. Any costs greater than this 20% can be paid for from pre-tax money. The next bit of information you need is the balloon payments schedule. In a 1 year lease you can pay off ~35%, 2 year ~44%,3 year ~53%, 4 year ~62.5%, 5 year ~72% from the principle cost of the car. So with a 1 year lease you pay 35% of the cost of the car + all costs and only 20% has to be paid post tax. This means you are paying 15% of the principle of the car in pre-tax money + all costs. 2 year lease only 4% of the car + costs is paid pre-tax, 3 year negative 7% + costs is paid pre-tax and it continues to get worse from there.
The slight tax savings you get is outweighed by the fact that brokerage and fees are amortised over 12 months rather than 60. Further, costs such as tyres which occur maybe once in 5 year term cannot be covered as you won't actually spend the money. I used to work in this field and can 100% tell you that 5 x 1 year leases is far far far more expensive than 1 x 5 year lease...
I don't think you get it. If the same fee is done over 1 year instead of 5 then you are moving MORE of the cost into pre-tax money. Also, I am not suggesting you do 5 x 1 year leases. The OP wants to buy a car. They will be keeping the car at the end. I am saying if you want to purchase a car and keep it then buying it on a 1 year lease is far superior to a 5 year lease.
For what its worth, I've never got a car I couldn't pay cash for. So in the early years of first home etc. we had rather 2nd hand cars. But over the years the cars got better and now own our home and have 4 nice cars (1 SUV, 1 Runabout, 1 HP convertible, and a classic American), 2 motorbikes and a large-ish boat (lives in the water) and none on any loan. The cost of ownership of a car is bad enough without adding very high-interest rate on top.If you can afford $1300 a month, then wait and get something cheap. Put the $25K you'll have at the end of the year on your mortgage. This will save you a lot in the long term, like $80K-90K lot, over the term of the loan, maybe more. The money you save there will get you a new car in the future for free if you think of it that way. Worked for me 