How Does a Novated Lease Work? Read Our Guide

The life cycle of a Novated Lease is unlike any other product or service life cycle. Although similar to a traditional car loan in some respects, it also has major differences – installments and running costs are deducted from your pre-tax salary, rather than from your post-tax by a financier in the case of a car loan. Because payments are taken from your pre-tax salary, this means the amount of tax you pay could be reduced and it is even possible to increase your disposable income. So what are the stages in the Novated Lease life cycle? This article guides you through the process, from sign up to the end of your lease.

Beginning – Sign up

Singing up to a Novated Lease first involves contacting your chosen provider to get a detailed quote, called a salary packaging schedule. In order to get an accurate quote you will need to provide some initial information about your proposed lease – annual salary, type of vehicle, length of lease and kilometres you plan to travel annually. The schedule will outline all deductions and running costs to be paid over the term of the lease. Once you are happy with the quote and wish to proceed with the lease, the salary packaging schedule must be signed by yourself, your employer and your Novated Lease provider. Once this is done, and your finance has been cleared, you will receive your brand new car! For more information about how a novated lease works, try this link.

Middle – Making the payments

Once you have completed the sign up process and receive your new vehicle, monthly payments are deducted from your pre-tax salary. These payments cover both the vehicle installments as well as the vehicles estimated running costs which are spread over the life of the lease. As payments are taken from your pre-tax salary, your taxable income is reduced and therefore you pay less tax. In some instances having a Novated Lease can even increase your disposable income.

End – Options for when your Lease ends

When your lease is drawing to a close, you will be contacted by your lease provider to discuss your end of lease options. If you wish to lease another car after your current lease expires it is best to organise this before your current lease is terminated.

At the end of the lease you are required to pay a residual, which is the amount remaining to be paid on your vehicle at the end of a Novated Lease. Once you have paid the residual value of your vehicle you can choose to:

  • Refinance the vehicle with your lease provider, depending on the age of your car
  • Pay out the residual value and keep the car yourself
  • Pay out the residual and sell the car, or arrange to have it auctioned by your lease provider

However you choose to end your lease, your provider is there to help you and provide advice regarding your options.

Conclusion

Despite being unique, Novated leases are easy to understand once you know the steps involved. Your Novated Lease provider is there to guide you through your lease from start to finish, helping you to get the most out of the arrangement. Once you fully understand the process, Novated Leases can result in substantial tax savings for you.

Rory Deegan wrote this piece. He’s the Online Marketing Executive for Novated by Fleetcare. You can find Rory on Google Plus too.

Leave a Reply