Is it Cheaper to Buy a Car Outright or Novated Lease?
When deciding whether to buy a car outright or go for a novated lease, it’s important to weigh the financial impact, particularly with Australia’s unique tax-saving benefits for novated leases. Both options have their pros and cons, depending on your financial priorities and long-term plans.
Buying Outright
When you buy a car outright, you fully own it from day one. This brings a level of freedom in terms of usage, modification, and eventual sale that leasing doesn’t offer. You’ll also avoid ongoing interest payments, which can be a significant long-term saving compared to financing. However, buying outright requires a substantial initial investment, which might impact your immediate cash flow or savings. Additionally, the car’s value will depreciate over time, affecting its resale value should you choose to sell.
Opting for a Novated Lease
With a novated lease, the car’s purchase and operating costs are deducted from your pre-tax income, reducing your taxable income and, as a result, potentially saving thousands each year. This setup also usually bundles insurance, maintenance, and fuel costs, helping with budget predictability. For example, a novated lease on a Tesla Model 3 over five years may cost around $76,504, factoring in tax savings—nearly $10,000 less than an outright purchase.
However, a novated lease comes with a residual payment if you want to own the car at the end of the lease. You’ll also continue to be responsible for lease payments, even if you switch jobs, unless your new employer offers novated leasing.
Which Option is Right for You?
If you have the funds and value complete ownership, buying outright is straightforward and free of ongoing commitments. But if you’re looking for cost-efficiency, significant tax benefits, and bundled running costs, a novated lease may be the better choice, especially for higher-income earners who can maximise tax savings.
Considering a Novated Lease? Speak to a novated leasing specialist to explore your options and get a clear breakdown of costs based on your unique situation.