10 Novated Leasing Mistakes to Avoid and Their Potential Impacts
Novated leasing can be a cost-effective and convenient way to own a car, especially when you factor in tax savings and bundled running costs. But like any financial product, it comes with rules, structures, and fine print that need to be understood.
Many people miss out on the full benefits of novated leasing by making avoidable mistakes. Some errors lead to unnecessary costs, while others can result in frustration or reduced financial outcomes. In this article, we explore 10 common novated leasing mistakes and how to steer clear of them.
1. Not Understanding the Full Cost Structure
One of the most common mistakes is assuming the lease payment includes everything, when in fact, there may be additional fees or exclusions.
Potential impact: Unexpected expenses or shortfalls in your budget.
How to avoid it: Ask for a detailed breakdown of what is included in the lease, this should cover lease payments, admin fees, insurance, fuel, servicing, registration, and roadside assistance.
2. Choosing the Wrong Lease Term
Your lease term determines your monthly payments and the residual value. A term that is too short can make payments unaffordable, while a term that is too long may mean you’re paying for a car past its ideal lifespan.
Potential impact: Higher costs, lower resale value, or being locked into an unsuitable contract.
How to avoid it: Choose a lease term that aligns with how long you plan to keep the car and what you can comfortably afford.
3. Overestimating Annual Kilometres
Some employees overestimate how much they drive, which can unnecessarily increase their lease costs. While novated leases often don’t impose kilometre limits, inflated running costs are based on estimated usage.
Potential impact: Higher fuel and servicing budgets than needed, reducing tax savings.
How to avoid it: Be realistic about how far you drive annually and adjust your lease estimates accordingly.
4. Underestimating Running Costs
Some employees attempt to keep costs low by underestimating running expenses like tyres, servicing, or insurance, only to be hit with out-of-pocket costs later.
Potential impact: Budget gaps and unexpected bills not covered by the lease.
How to avoid it: Use realistic figures when calculating your running costs and include a buffer for fluctuations in fuel prices and maintenance.
5. Ignoring the Residual Value
The residual value is the amount you may need to pay to own the vehicle at the end of the lease. Many people forget about this entirely until they receive the final invoice.
Potential impact: Being caught off guard with a large payment at the end of the lease.
How to avoid it: Know your residual value upfront and plan ahead, whether you want to purchase the car or return it.
Learn More: Company Cars vs. Novated Leasing: Which Option Makes More Business Sense?
6. Not Comparing Lease Providers
All novated lease providers are not created equal. Fees, support, and transparency can vary widely.
Potential impact: Paying more than necessary or receiving poor service.
How to avoid it: Research, compare quotes, and read reviews before signing anything.
7. Choosing the Wrong Vehicle
Getting caught up in the excitement of a new car can lead to poor vehicle selection. Whether it’s choosing a vehicle that depreciates quickly or one that doesn’t meet your needs, it can reduce the value of your lease.
Potential impact: Reduced financial benefit or dissatisfaction with the vehicle.
How to avoid it: Consider your lifestyle, future needs, and resale value when selecting a vehicle.
8. Not Considering FBT Implications
Fringe Benefits Tax (FBT) applies to most novated leases, unless you’re leasing an eligible electric vehicle. Many employees misunderstand how FBT impacts the total cost of their lease.
Potential impact: Higher than expected tax liability or reduced salary packaging benefits.
How to avoid it: Learn how FBT works and ask your provider if your chosen vehicle qualifies for any exemptions.
9. Ending the Lease Early Without Understanding the Terms
Life happens – job changes, relocation, or unexpected financial shifts. If you need to end your lease early, you may be hit with termination fees or payout costs.
Potential impact: Large financial penalties.
How to avoid it: Before committing, ask about early termination conditions and have a contingency plan.
10. Assuming It’s Just Like a Car Loan
A novated lease is not a standard car loan. It’s a salary packaging arrangement with unique tax, ownership, and accounting considerations.
Potential impact: Misaligned expectations and under-utilised benefits.
How to avoid it: Take the time to understand how novated leasing works, and how it differs from a traditional car loan.
Conclusion
A novated lease can be an excellent way to save money, streamline your vehicle costs, and enjoy the benefits of driving a new car. But the key is to go in with your eyes open. Avoiding these common novated leasing mistakes ensures that you get the full value out of your arrangement and avoid unwanted surprises.
If you’re considering a novated lease, speak with One Car Group to ensure your package is tailored to your needs and set up for success from day one.
