Novated Lease Pros and Cons: Is It Worth Your Ride?
Are you considering a novated lease in 2025 but unsure if it’s the best option for you?
A novated lease offers a unique way to finance your vehicle through your employer, potentially providing you with significant tax savings and other perks.
However, like any financial decision, there are pros and cons to consider. In this guide, we’ll break down everything you need to know, helping you make an informed choice.
What is a Novated Lease?
A novated lease is a financial arrangement where your employer deducts your lease payments directly from your pre-tax salary.
This allows you to pay for your vehicle while saving on taxes. However, this method is only available to salaried employees, and there are a few things you should know before jumping in.
Novated Lease Pros & Cons at a Glance
A novated lease can seem like a great way to finance a vehicle, but it’s important to weigh both the advantages and disadvantages.
Let’s break down the key points:
Novated Lease Advantages
Vehicle Use: With a novated lease, you can use the vehicle 100% for personal use, without needing to track business usage.
Tax Savings: Lease payments are deducted from your pre-tax salary, reducing your taxable income.
Flexibility: You can lease both new and used cars (as long as the car is not older than 15 years at the end of the lease).
Car Running Costs: You can bundle running costs like fuel, servicing, tyres, insurance, and registration into the lease, saving you money.
Fringe Benefits Tax Exemption for EVs: Electric vehicles (EVs) are exempt from fringe benefits tax (FBT), which offers significant savings, especially on new EVs.
Novated Lease Disadvantages
Employer Restrictions: Some employers only offer novated leasing through a specific provider, limiting your options.
Only Available to Salaried Employees: If you’re self-employed, you won’t be eligible for a novated lease.
No Ownership Until the End of the Lease: You won’t own the car until the lease ends and you pay the residual value.
Possible Additional Costs: Novated leases can have extra fees, like interest and charges for excessive wear and tear or mileage overages.
Novated Lease Advantages
Here are the advantages of a novated lease:
1. Vehicle Can Be Used 100% for Personal Use
Unlike traditional car loans, with a novated lease, you can use the vehicle solely for personal purposes. There’s no need to track business usage or submit reports on how often you drive for work.
2. EVs Are Exempt from Fringe Benefits Tax
If you choose an eligible electric vehicle (EV) for your novated lease, you can save significantly due to the FBT exemption. For example, the BYD Seal or Tesla Model Y can be leased without any FBT liability, reducing your overall costs.
3. Use Pre-Tax Salary for Repayments
With novated leasing, you pay for the vehicle using your pre-tax income. This reduces your taxable income and can place you in a lower tax bracket, resulting in significant tax savings.
4. Flexibility with Used or New Cars
You can lease a new car or a used car (if it's not older than 15 years at the end of the lease). Plus, you have the option to purchase the car at the end of the lease by paying the residual value (balloon payment).
5. Lease Can Be Transferred to a New Employer
If you switch jobs, you can transfer the lease to your new employer, or if your new employer doesn’t offer novated leasing, you can take over the payments yourself.
Novated Lease Disadvantages
Here are the disadvantages of a novated lease you must be aware of:
1. Employer Provider Restrictions
You may have to use your employer’s chosen provider, limiting your options and possibly preventing you from shopping around for a better deal or higher-quality customer service.
2. Only Available to Salaried Employees
Since novated leases are salary-sacrificed, they’re only available to salaried employees. Contractors, sole traders, or people working for themselves are not eligible.
3. No Car Ownership Until Lease Ends
You don’t own the car until you pay off the residual value (balloon payment) at the end of the lease. If you don’t wish to purchase it, you may need to return the vehicle.
Is a Novated Lease Right for You?
A novated lease can be a great option if you’re looking to save on taxes and simplify your vehicle-related expenses. However, it’s important to consider whether the long-term commitment is right for your financial situation.
If you want a new or used car with the flexibility of changing vehicles every few years, a novated lease could be a perfect fit.
Get Your Best Novated Lease Deal with Novated Finance Australia
At Novated Finance Australia, we offer a wide range of novated leasing options designed to help you drive the vehicle you want while saving on taxes and running costs.
Whether you're interested in electric vehicles like the Tesla Model Y or a more traditional option, we can help you choose the right novated lease for your needs.
Get a quote today to see how much you can save with a novated lease!
Frequently Asked Questions
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A novated lease offers benefits such as tax savings, the ability to bundle car running costs into pre-tax payments, and the flexibility to lease new or used cars.
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Since your novated lease payments are deducted from your pre-tax salary, your taxable income is lowered, potentially resulting in significant tax savings.
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At the end of the lease, you can extend the lease, pay the residual value to own the car, or trade it in for a new car. If you trade it in, you may keep any profit made from the sale.