Vehicles, worldwide, have been increasing in cost. This does not just mean the amount of money it takes to actually buy the auto-mobile, but it also takes into consideration the cost of insurance, maintenance and gasoline. Buying a medium-sized vehicle outright in Australia (Mazda Sport or Volkswagen Jetta, for instance) can cost $40,000+ and this is before you take into account the cost of insurance, gasoline and any repairs that need to be undertaken throughout the life of the vehicle. Buying a Mazda Sport on finance and then including the daily costs can mean that you will end up spending nearly $60,000 over a 5 year period; a huge sum of money.
It is for this reason that a lot of Australians are turning to leasing. The current value of the auto leasing market in the country is just over $1.1bn per annum and it often provides an easy way to get a luxury vehicle without having to pay the massive cost. However, how does it work and what are some other benefits of getting an auto lease?
An Australian specific type of lease is known as a Novated Lease. This is essentially a three way agreement between an employee of a business, the employer and the vehicle dealer. It works with the lease company and employee striking a deal for the employee to lease a car, the employer or business will then take on the terms of the lease and the monthly payments will be deducted from the employee’s wage. So, for example, if an employee earns $5000 per month and they make a deal with the lease company for a vehicle that will cost $1000 per month, the employer will deducted this $1000 from the employee’s pre-tax income.
This method is actually highly beneficial to all parties and is increasingly common in Australia. The employee gets a new, luxury vehicle with the money coming straight from their pre-tax salary, the employer appears attractive to potential recruits through this scheme and they do not need to worry about issues over company cars as the deal is theoretically between the employee and the lease company with the business acting as a middleman in a way. The lease company is also more or less guaranteed the money every month due to it coming straight from the business. Indeed, in many cases the employee will pay less tax on their salary as a result.
These advantages usually mean that a Novated Lease – if your company can offer this – is better than getting a car loan by yourself.
The loan stipulations are often restricted, however a lease means that you can alter the agreement throughout its life-cycle. You can upgrade your vehicle over a period of time, much in the same way as you would a cell phone contract, for example.
While many people say that you should buy a vehicle outright rather than leasing, the Novated Lease system in Australia is a win-win situation for all 3 parties involved: the employee, employer and the leasing company.
Mike is an auto enthusiast who deals in buying and selling cars in Australia. Lately he has came across a new trend of getting a new car but not owning it known as Novated Lease. He has found that Private Fleet is one such company that is offering Novated Lease options to car buyers.