Novated Lease or Buying with cash – Which is the right one for you?

Fri 04 Aug

Novated Lease or Buying with cash – Which is the right one for you?

The novated lease is often thought of as a complex product, and for this reason, many people assume that it’s not for them. But if you take the time to take a closer look, you’ll soon realize that if your employer is willing to offer you this benefit, then it really is one of the most attractive car buying options on the market.

Your opinion of novated leasing may be somewhat clouded due to the assumption that it’s a service for big earners that includes dodgy tax breaks and even requires you to drive a ton of kilometres every year.

This couldn’t be further from the truth.

In fact, the average person who takes out a novated lease earns under $100,000 and drives a car worth $34,500. And contrary to popular belief, there’s nothing dodgy going on with your tax, but we’ll get to that a bit later. Let’s first take a quick look at what novated leasing actually is.

What is novated leasing?

There are many myths surrounding the novated lease, some of which we well and truly busted right here. And because of these myths, this car purchasing option is often thought of in a less than positive light. But the truth is that it’s actually an extremely convenient way to get a new or used car and save a few dollars while you’re at it.

A novated lease is a form of finance available as an employee benefit, and what a benefit it is. Unlike a normal car loan, a novated lease allows you to pay less tax on your salary, save GST on servicing, maintenance, and the purchase price of your car, and also offers the added convenience of payments being deducted directly from your salary. But the best thing about the novated lease is that you, not your employer or a leasing company, own the car.

The pros of novated leasing

  • It’s an exceptional employee benefit (Employers can effectively give their employees a 5% pay rise without it costing them a cent)
  • Save GST on the price of the car and its running costs.
  • Save on tax with part of your finance and running cost payments coming out of your salary pre-tax.
  • You have the option to pay the residual at the end of the lease term and own it outright.
  • You don’t need to drive a lot of km to benefit.
  • You don’t need to use the car for work.
  • No more worrying or budgeting for Rego, Insurance or major services as that’s taken care of within your lease.

A new car every 1-5 years, lower payments, you save GST on repairs, and you pay less tax? Why aren’t we all on the novated leasing bandwagon?

Well, regardless of the obvious benefits of novated leasing some employees that are offered this benefit still feel attracted to more traditional methods of purchasing such as financing and straight cash deals. Here’s why.

The pros of buying a car with cash

We’re quite sure we don’t need to explain what buying a car means so let’s jump straight into the pros.

  • You own the car and get to sell it when you’re bored of it.
  • No balloon payment when you want to change cars
  • You can use it as a trade-in for a newer car.
  • More financial freedom if you buy the car for cash.
  • Purchasing a car that is a collector item or vintage, that will do low kilometers 

The freedom of owning your car outright, the fact that you have something tangible after it’s paid for are ok reasons to dip into your savings.

However, there are also downsides such as the fact that you have paid your money into a depreciating asset rather than keeping your money in the bank. Also, unless your car is under warranty, you are responsible for all repairs. Anyone who has been burned buying a less than reliable used car will understand how painful an experience this can be. You can, of course, avoid such unpleasant mishaps by taking advantage of a comprehensive pre-purchase inspection by Redbook (only $150 for existing Stratton customers).

This means that you have more of your cash tied up in the car and although you can sell it at any time, you’re still investing significant funds into something that is constantly depreciating.

Which one is better?

The truth is that neither is better, but sometimes one may be more suitable than the other.

Novated Leasing – Good for those who prefer a single salary deduction for all their car-related needs and who fancy saving some cash on GST and getting a pay rise from the tax man. It’s also a worry-free path to car ownership that’s ideal for people that need an affordable and convenient way to buy a new or used car every 1-5 years.

Buying –  Perfect for those that prefer fewer restrictions on their driving. In other words, those that rack up inconsistent kilometers i.e. high some months low others or those that enjoy modifying their cars. People who like to keep the same car for as long as possible will also prefer buying.Though in our opinion the main reason would be around purchasing that collector item or vintage car. 

Of course, these are very simple guidelines, and the fact remains that each and every person will have a very different set of personal and financial circumstances that will determine which would suit them best.

It is worth noting that novated leases are a commercial finance product which means finance companies offering Novated leases are not currently bound by the National Consumer Credit Protection Act (NCCPA). The NCCPA ensures that consumers fully understand the financial products they are buying by letting them know interest rates or anything else that might impact the cost of their credit.

However, Stratton Finance has changed the game here, we are passionate about our customers and ensuring all products and services are transparent and customer’s feel empowered and informed when they work with us. As such, we proactively disclose all rates, costs, and charges in our transparent novated lease packages. Not letting you know everything about your financial product is common practice in the industry and seems wrong to us and so we’ve gone against the grain to offer you, as a consumer total transparency and control.

So if you’re in the market for a new or used car and have decided that novated leasing is the right choice for you then give us a call on 1300 131 050. Alternatively, if you feel that buying is your best option then get in touch with one of our car consultants on 1300 (STRATTON) 787 288.

 

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