Most Australians associate novated leasing with new cars, but did you know you can also lease a used car through a novated lease? This option opens up a whole new range of possibilities for people looking to drive a pre-owned vehicle while still taking advantage of the tax savings and flexibility that novated leasing offers.
Let’s breakdown how novated leasing works for used cars, its benefits, and how it can be a smart financial decision for those looking to save on both their vehicle and their taxes.
How Does a Novated Lease for Used Cars Work?
A novated lease is a salary packaging arrangement where your employer deducts lease payments from your pre-tax salary to cover the cost of a vehicle. This results in you paying less tax overall all while driving the car of your choice.
While novated leases are typically associated with new cars, the same structure can apply to used vehicles. Here’s how it works:
1. Choose a Used Car: You can select a pre-owned vehicle that fits within the guidelines of your leasing provider. Usually, the car must be within a certain age and km limit (e.g., under 7-10 years old and less than 100,000 km).
2. Pre-Tax Lease Payments: The payments for the used car, along with running costs like registration, insurance, and maintenance, are deducted from your pre-tax salary, lowering your taxable income.
3. Lease Term and Options: At the end of the lease term (typically 2-5 years), you have the option to buy the car, re-lease it or sell the car and upgrade to a newer model. This flexibility gives you the freedom to choose what suits your financial needs.
Why Consider a Novated Lease for a Used Car?
Novated leasing a used car comes with several advantages, especially for those looking for a more budget-friendly option without missing out on the tax benefits.
1. Lower Monthly Payments
Since used cars are generally less expensive than new cars, your monthly lease payments will likely be lower. This makes leasing a used car a great option for those who want to enjoy the perks of a novated lease without the higher cost of a new vehicle.
2. Tax Savings
Just like with new cars, novated leasing a used car allows you to reduce your taxable income. Lease payments are made with pre-tax dollars, meaning you pay less income tax each year. For high-income earners, this can result in significant tax savings.
3. GST Savings
With a novated lease, you also avoid paying GST on the purchase price of the vehicle and its running costs. This can save you nearly 10% on the cost of the car, which adds up to substantial savings, especially when combined with the lower price of a used vehicle.
4. Flexibility to Upgrade
At the end of your lease term, you’re not tied to the vehicle. You can choose to:
- Buy the car by paying the residual value.
- Sell the car and lease a different used or new car.
- Re-lease the same car.
This flexibility is one of the key advantages of novated leasing, whether you’re leasing a new or used vehicle.
5. Lower Depreciation
Used cars experience less depreciation compared to new cars, which lose the most value in the first few years. By opting for a used car, you avoid the steep depreciation curve that new cars typically face, potentially giving you better value when it comes to the residual value at the end of the lease.
Key Considerations When Leasing a Used Car
While novated leasing a used car can offer great benefits, there are some factors to consider before making a decision.
1. Age and km Restrictions
Most leasing companies have restrictions on the age and mileage of the used vehicle you can lease. Typically, cars need to be less than 7-10 years old and have fewer than 100,000 km at the start of the lease. Be sure to check with your leasing provider about the specific eligibility criteria for used cars.
2. Maintenance and Repairs
While used cars tend to have lower upfront costs, they may require more maintenance and repairs than new vehicles. However, since the cost of maintenance is bundled into the lease, it’s usually covered under the novated lease agreement, reducing your out-of-pocket expenses.
3. Residual Value
The residual value is the estimated value of the car at the end of the lease term. For used cars, the residual value is often lower than for new cars, but it’s important to consider how this will impact your decision at the end of the lease.
Is Novated Leasing a Used Car Right for You?
Novated leasing a used car is a great option if
- You want to lower your weekly/fortnightly/monthly payments by leasing a pre-owned vehicle.
- You’re looking to reduce your taxable income and take advantage of tax savings.
- You want the flexibility to upgrade to a newer car after a few years without the long-term commitment of owning.
- You’re interested in avoiding the steep depreciation of a new car.
On the other hand, if you’re concerned about higher maintenance costs or prefer the latest technology and features found in new cars, leasing a new vehicle might be a better option.
Explore Your Options with Novated Leasing for Used Cars
Novated leasing for used cars offers a fantastic way to enjoy the benefits of salary packaging while driving a more affordable, pre-owned vehicle. With lower monthly payments, significant tax savings, and the flexibility to upgrade, leasing a used car can be a smart financial decision.
If you’re considering leasing a used car, CarBon Novated Leasing can help you find the perfect vehicle and guide you through the process. Contact us today to explore your options and start saving with a novated lease.