Novated Lease Vs Car Loan: What’s Your Best Option?

Novated lease vs car loan – what is my best option? If you aren’t sure what the differences between these two finance products are, read on! We’ll explain how each of these loan products works, so you can choose the best financing option.

Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

Novated lease vs car loan – what is the difference?

Not sure whether or not to opt for a novated lease vs car loan? Monzi is here to give a brief rundown of both financing options.

What is a novated lease?

Put simply, a novated lease is an arrangement you make with our employer. Specifically, your employer pays for the lease, as well as the running costs of your car through a sacrifice of your salary, as well as a combination of pre and post-tax deductions.

As a result, your weekly budget is not used to cover things like rego, insurance, running costs and roadside assistance.

In addition, your car is seen as a company car for tax purposes. Therefore, you can reap benefits like GST discounts.

At the end of the lease, you can return the car, make an offer to purchase the vehicle or extend the lease.

What is a car loan?

A car loan is a typical way to finance the purchase of a car. In other words, you borrow a lump sum to cover the cost of buying a vehicle. Often, these loans are secured by the newly purchased car.

The borrower then makes repayments according to the terms in their contract. If the borrower fails to repay their loan, the lender may begin the repossession process.

Novated lease vs car loan – novated lease pros and cons

Consumers should always compare their options before making a decision. Therefore, consider the following pros and cons of a novated lease:

Benefits

  • May not require an initial deposit. Repayments are simply made from salary sacrifice, which may help you better manage your budget.
  • May gain discounts on the purchase price, as well as running costs of your car.
  • Amount financed is often based on the value of the car minus GST.
  • You can get a novated lease on a used car as well as a new car.
  • Your car can be used for both private and work-related purposes.

Costs

  • Any residual liability rests with the lessee. You will need to cover any gap between the residual value and the sale price of the car to finalise your lease.
  • You may have to pay for any damages or general wear and tear.
  • If you lose your job, your new employer will have to take over the lease. Otherwise, you may need to terminate your lease and may face additional charges.
  • You do not own your leased car. Therefore, you cannot make any changes to the vehicle.

Car loan pros and cons – novated lease vs car loan

Consider the potential benefits and drawbacks to a traditional car loan:

Benefits

  • Potentially more flexibility in your contract.
  • You can reduce your finance amount if you pay a deposit.
  • You are not restricted on how many kilometres you can clock during the finance period.

Costs

  • Maintenance and general running costs must be paid out of your post-tax income.
  • Unable to claim GST.
  • Privately selling your car is not always plain sailing. Moreover, finding a buyer can be a long process and you may not sell the vehicle for your desired amount.

Thinking of whether or not it is better to salary sacrifice or buy a car? Get in contact with an accountant or financial advisor to better understand which option is right for you.

Is leasing a car worth it in Australia?

Ultimately, whether or not it is worth leasing a car in Australia depends on your personal situation. Therefore, consider asking yourself the following questions:

  • How much driving? You are generally required to drive an average number of kilometres each year under the terms of your lease.
  • Already own a car? Factor in whether or not you already own a car. If so, you may be able to make use of a trade-in offered by certain dealership.
  • Business or pleasure? You and your employer may be able to agree on a novated lease if you intent do spend the majority of your time on the road for work.
  • Credit history. Certain leasing companies may be unwilling to offer you a loan if you have negative marks on your credit file. On the other hand, bad credit may also hinder your car loan application.

Novated lease vs car loan people laughing in car

Novated lease vs car loan – can Monzi help?

Monzi is unable to help you with a novated lease or a car loan. This is because we specialise in trying to match applicants with lenders offering loans for personal expenses. We do not work with lenders that offer car finance or novated leases.

If however, you do wish to use our service, we may be able to match you with lenders offering the following:

  • Small personal loans: $300 to $2,000 unsecured.
  • Medium personal loans: $2,001 to $4,600 secured.
  • Large personal loans: $5,000 to $10,000 secured.

In addition, your repayment terms may vary between lenders. Generally, however, you may be able to expect the following terms:

  • Up to 12 months for loans valued $2,000 and under.
  • 13 to 24 months for loans valued above $2,001.

Ultimately, the terms of your loan will depend on the lender you match with. As a result, the above terms are simply a guide.

Novated lease vs car loan – I need advice

Monzi is a lender-finder service, meaning we do not offer advice. Instead, the information in this article is general in nature and may not always relate to you and your unique circumstances.

You will, as a result, need to seek professional advice. Consider getting in contact with your accountant or financial advisor for more information.

Conclusion

To conclude, a novated lease may be a good option in certain circumstances. On the other hand, this credit product may not be the best option for everybody. It is, as a result, imperative you do your own research into the loan products, as well as your individual circumstances.

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Factor In

Costs

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You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months (minimum)

12 months (maximum)

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Representative example based on a loan of $1000 over 6 months a borrower can expect to pay a total of $1440.

Disclaimer: Under the current legislation, all Small Amount Credit Contract loan providers don’t charge an annual interest rate. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The comparison rate on loans between $300 and $2000 could be up to 199.43%. The minimum loan term is 16 days and maximum loan term is 12 months. Representative example based on a loan of $1000 over 6 months a borrower can expect to pay a total of $1440. WARNING: This comparison rate is valid only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan.

Loan amount

$2,100 - $4,600

Terms

13 months (minimum)

24 months (maximum)

Costs

47.8% Annual Percentage Rate (APR)

65.85% Comparison Rate p.a.

Example

Representative example based on a loan of $2500 over 24 months a borrower can expect to pay a total of $4,556.88.

The maximum interest rate for a Medium Amount Credit Contract is 47.8%. Comparison Rate 65.85% p.a. The maximum loan term is 24 months. Representative example based on a loan of $2500 over 24 months a borrower can expect to pay a total of $4,556.88. WARNING: This comparison rate is valid only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Credit criteria and terms and conditions apply.

Loan amount

$5,000 - $15,000

Terms

13 months (minimum)

24 months (maximum)

Costs

17% Annual Percentage Rate (APR)

36% Comparison Rate p.a.

Example

Representative example based on a loan of $10,000 over 36 months a borrower can expect to pay a total of $16,489.

The starting interest rate for a Personal Loan is 17%. Comparison Rate 36% p.a. The maximum loan term is 24 months. Representative example based on a loan of $10,000 over 36 months a borrower can expect to pay a total of $16,489. WARNING: This comparison rate is valid only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Credit criteria and terms and conditions apply.