Why Are Most People Taking Their Car On Lease In Sydney?

When considering purchasing your next vehicle, you may be wondering if car leasing is right for you. Leasing can be a cost-effective way of driving the best and latest models of vehicles, without the big upfront price tag. Lease payments can be cheaper than a traditional car loan as you are essentially paying to use the car rather than paying for the car itself. 

Whether you are an individual or a business, there is a leasing option that is available for you. So, let's take a look at some of the options available: 

A novated car lease:

What is a novated lease?

Novated leasing is an ATO-approved, tax-effective way to get your dream car in Sydney. A novated lease allows you to use your pre-tax salary to pay for a car and other running expenses by way of salary packaging.

Not only does a novated lease give you income tax benefits by reducing the tax you pay, but you will also save thousands as GST is not payable on the purchase price of the car!

The advantages of a novated lease don't stop there. You can also include your car's running costs into your novated leasing payment. Included in your running costs, can be fuel, insurance, registration, roadside assistance, and maintenance. 

All these advantages add up to a novated lease being the most cost-effective way to buy and maintain a car in Sydney!

So, how does a novated leasing work?

A novated car lease can be used to lease either a new or used car. Unlike a traditional car loan which you pay from your after-tax income, your employer will deduct the monthly cost from your pre-tax income as part of your salary packaging. At the end of the novated car lease term, you will be required to pay a residual amount or balloon payment. 

The residual payment is an ATO requirement, and the cost will depend on the lease term and the value of the car. It is important to note that this payment needs to be paid from your after-tax income. However, you do have options when it comes to the balloon payment -including refinancing, selling the vehicle, or entering into a novated leasing contract.

Novated leasing may incur fringe benefits tax so, make sure you speak with your tax agent before you enter into a novated lease arrangement. You can also find out more information by reading the information on the ATO website - ATO - Car Leasing Fringe Benefits

Finance and Operating leases

Sydney businesses considering leasing rather than purchasing can choose between a finance or operating lease. Leasing a new car or other essential equipment can have tax benefits as well as keeping working capital free and operating costs down.

What is a finance lease?

Finance leases can be used by businesses to lease a car or other essential equipment. Your business will enter into an agreement for a set period of time. The equipment is financed excluding GST and you will pay a residual amount at the end of the leasing term. 

Unlike an operating lease, all maintenance costs are the responsibility of the business.

What is an Operating lease?

If your business chooses an operating lease, you pay a set monthly payment for an agreed period of time or kilometers. The finance company generally pays for most servicing and other running costs (excluding fuel). And at the end of the term, you hand the car back with no further payment required. 

Why are most people taking a car on lease in Sydney?

Now that we understand the different types of leases available to both individuals and business owners. Now we can look at the advantages of car leasing:

Advantages of a novated lease for employees:

1. Your dream car can be your leased car! 
2. Your car can be specifically for private use - a novated lease isn't just for those employees needing a vehicle for work.
3. You'll generally have lower monthly repayments than if you were to finance the purchase of a car using a car loan. 
4. You can include the running costs of your new car, including fuel, registration, and insurance into your pre-tax salary. Therefore, reducing your taxable income and saving you money.
5. You avoid paying the GST component on the price of the new car.
6. You can choose to refinance the balloon payment by way of a more traditional car loan or take out a new novated lease.

Advantages of a finance lease or operating lease for businesses

1. You can get the new car you need without tying up your working capital
2. Businesses may be able to claim the cost of leasing as a tax deduction (check this one out with your accountant)
3. If your ABN is less than two years old or if you don't meet the lender's requirements for a secured loan (commonly known as a chattel mortgage), you may still qualify to for a lease agreement. 
4. Leasing a new car or up-to-date equipment can save you money on maintenance costs and keep your running costs down and in the long run, save you money.
5. You can tailor the term of the lease agreement to help balance your budget. 
6. Shopping around can also save your money. Car fleet services will often have a bigger range of new cars and because of their buying power, you may get a better deal.

A car lease doesn't equal ownership!

Regardless of the type of lease arrangement, there may be restrictions on km. There are also modifications that can be made to the vehicle. Always check your contract as you may face a monetary penalty if you go over this allowance or if the vehicle is not returned in good condition

Considering a car lease in Sydney?

Car leasing can be an affordable option for individuals and businesses in Sydney, who need to upgrade their cars on a regular basis. However, there are many factors to consider, so be sure to do your research! If you decide to lease, be sure to compare offers from multiple dealerships. Also, make sure you read the fine print carefully before signing a contract. 

If you are considering a car lease in Sydney and still have questions, give one of our experienced brokers at Finance Brokers NSW. A call and we can assist you to make the right choice for your own individual circumstances.