Pros & Cons of novated leasing a used car
First & foremost, you can get a novated lease for a used car so long as the car is less than 10 years old at the end of lease.
Prior to making a decision, you will need to figure out if a novated lease will be better for you financially than a secured car loan.
A novated lease on a used car works exactly as it would for a new car. You will need to have an agreement with your employer and the novated lease will have a residual (also known as “balloon”) payment which is set by the ATO at the end of the lease.
The advantages of a used car is that the costs to finance it will be lower and so the impact on your take home pay better than a new vehicle. However your costs of running the car are likely to be higher as used vehicle will incur costs such as brake replacements, higher servicing costs and replacement tyres that in allot of circumstances can be minimised or avoided with the purchase of a new car.
To set up your novated lease, you will need:
- Agreement with your employer
- Be a PAYG employee
- Enough income to meet the lease repayments
- An idea of what type of car you want
- Comprehensive car insurance
Searching for a used vehicle is very much a thing that you will need to do. Unlike new cars, that One Car Group car procure for you, tracking down a used car will require your time as every used car is different and historically we have found that customers prefer to see the used car in advance of committing to the purchase. We recommend online research for car reviews at Car Advice and checking of market prices in your area via carsales.com.au
What does it all mean?
In short, you will need to consider if a novated lease is the most cost-effective way to buy a car as the cost may cancel out the benefits. Check with your tax or financial advisor before making any decisions on novated leasing to ensure it is an appropriate for your circumstances.
Pros and Cons of Novated Leasing a Second Hand Used Car
| Pros | Cons |
| Lower Financing Costs: A used car novated lease typically costs less to finance compared to a new car, reducing the impact on your take-home pay. | Higher Maintenance Costs: Used cars often incur higher costs for maintenance, repairs, and parts replacement. These costs can add up during the lease term. |
| Tax Benefits: Payments are made from your pre-tax salary, which can reduce your taxable income and save you money on taxes. | Residual Payment: At the end of the lease, you’ll need to make a residual payment to own the car outright. |
| GST Savings: If purchasing from a dealer, you don’t have to pay GST on purchase price. | Fringe Benefits Tax: Depending on the vehicle and its usage, you may need to pay fringe benefits tax (FBT). |
| Flexibility: A novated lease gives you the flexibility to include car running costs like insurance, registration, and maintenance as part of the package. | Job Changes: If you change jobs or take unpaid leave, the complexity of managing your novated lease repayments may increase. |
| Exemption for Electric Vehicles (EVs): If the used car is an electric vehicle (EV) and is below the luxury car tax threshold, it may be exempt from FBT. | Vehicle Age Limit: The maximum age of the vehicle must be less than 10 years at the end of the lease, which may limit some car options. |
Can I buy any car I like?
There are some restrictions on what car you can buy, such as:
- Maximum carrying capacity of less than one tonne, (utes like the Hilux and Ranger are OK)
- maximum number of passengers is 11 people
- Less than 10 years old at the end of the lease
What finance term is best?
When choosing to enter into a novated lease on a used vehicle we suggest a term of 24 to 36 months. The reasoning is that as the vehicle gets older the costs to maintain the vehicle increase and what you have saved on the purchase price can get quickly chewed up in maintenance costs on older cars.
Contact Us
At One Car Group, our consultants have extensive knowledge of how novated leasing can work to match your budget. For an obligation free proposal call the team on 1300 616 993 or use the Contact Form.
Frequently Asked Questions (FAQs)
1. Can I novate a used car?
Yes, you can novate a used car as long as it’s less than 10 years old at the end of the lease term. The process works the same as a new car novated lease, with the additional factor of maintaining the car’s condition throughout the lease term.
2. What is the maximum age for a novated lease used car?
The maximum age for a used car under a novated lease is generally 10 years old at the end of the lease. Some providers may have a maximum of 12 years, but this is typically for well-maintained vehicles.
3. Can I get a novated lease for a second-hand car?
Yes, you can finance a second-hand car with a novated lease. The benefits of financing a second-hand vehicle include lower upfront costs and smaller monthly repayments compared to new cars.
4. Can I novate a used car bought from a private seller?
Yes, you can novate a used car purchased from a private seller. However, you won’t benefit from GST savings in the same way you would when purchasing from a dealer.
5. What happens if my used car needs repairs during the novated lease?
During a used car novated lease, you are typically responsible for covering the cost of repairs and maintenance. However, you can include the estimated costs of these services in your lease agreement, and it’s recommended to have the car independently checked by a mechanic before finalizing the agreement.
6. Is a used car novated lease more affordable than a new car novated lease?
Generally, a used car novated lease can be more affordable than a new car lease because the initial cost of the vehicle is lower, meaning your monthly payments may be reduced. However, maintenance and repair costs could offset this benefit.
7. Can I lease an electric vehicle (EV) under a novated lease?
Yes, you can lease an electric vehicle (EV) under a novated lease. If the vehicle is below the luxury car tax threshold, you may even be exempt from fringe benefits tax (FBT), which can offer significant savings.
