So you’ve decided to sign up to a novated lease and wondering what happens next? Here is the basic overview of what’s required and how it will work.
Leasing allows you to replace your vehicle with a new model every 1 to 5 years at a fixed monthly payment for the term of the lease. For a comprehensive overview on car leasing, including the benefits and negatives of why you might consider doing it, you can read our in-depth car leasing guide here.
Included in a novated lease will usually be all ongoing costs like finance payments, insurance, fuel, servicing, and even new tyres. All of this is calculated over the life of the lease and split into monthly payments. Deals are normally calculated over periods of two, three or four years but it can be one or even five years long.
Because this payment is taken from your pre-tax salary, you are taxed on what is left after the lease payment is made, thus reducing how much tax you need to pay. And an employer who organises a novated lease for an employee can claim the GST back.
Types of leasing deals
Novated lease
This is the best choice when you are using the car for personal use or have a vehicle allowance through your employment, and it means the car and costs will be paid before tax.
Finance lease
This is more similar to traditional car buying with a purchaser (usually a business) purchasing a car at a dealership. However, the purchaser is a financier that leases the vehicle.
Operating lease
Similar to a finance lease but the business simply hands the vehicle back at the end of the contract without any worry of paying the residual value.
Kilometer limit
The most common myth is mileage limits. There’s no minimum distance that a novated lease needs to travel anymore, and there are unlimited kays you can drive.
Credit check
Once you have chosen your preferred vehicle, you will be required to complete a credit check and declare personal information including your name, address, employment details and income.
As the vehicle is effectively financed by another company, a credit check helps inform that the required payments for that vehicle and terms can be made.
Administration fees
Some services may charge an administration fee that is payable upfront or will be included in the monthly payments.
Delivery
Some lease deals may come with free delivery or otherwise, the fee is included in the total payment costs.
Warranty
Your lease vehicle is covered by the manufacturer-backed warranty. Under this, any non-consumable parts that go wrong within this period will be replaced at your local dealership free of charge (refer to your documentation to check what is covered in your warranty).
Many car warranties are provided for five years (from 100,000km to unlimited) so if you have a leasing contract of five years or less then the vehicle will be covered throughout your agreement period. However, manufacturer warranties vary, so always check beforehand.
Some lease companies offer additional insurance, including extending warranty insurance.
Maintenance
The option to purchase maintenance with your lease vehicle is usually available or already included, which can bring even more savings.
It will be your responsibility to have the car serviced in line with the manufacturer’s service intervals.
Taxes
The cost of the vehicle includes on-road taxes and GST, although the employer can claim the GST back.
Insurance
You will need to have insurance which is also offered by most car leasing services.
When the Contract Ends
At the end of the contract, you hand back the car, ensuring it is returned in a roadworthy condition without any internal or external damage other than usual wear and tear. It makes sense to repair any damage to a lease vehicle before the contract ends because you’ll face extra charges to cover any necessary repairs – and thus why comprehensive insurance is there.