Is a Novated Lease Worth It? Exploring the Pros & Cons

If your employer offers novated leasing, you might be wondering—is a novated lease worth it? It’s an attractive way to finance a car, with potential tax savings, simplified budgeting, and flexible end-of-lease options. But like any financial decision, it’s important to weigh up the benefits and consider whether it suits your circumstances.

Novated leasing is especially popular among employees who want to drive a new or near-new car while maximising tax benefits. But does it make sense for you? Let’s break it down.

How Does a Novated Lease Work?

A novated lease is a three-way agreement between you, your employer, and a finance provider. Your employer makes lease payments on your behalf using a portion of your pre-tax salary. This process, known as salary sacrificing, reduces your taxable income and, in turn, lowers the amount of income tax you pay.

Your lease repayments cover the cost of the vehicle, and you have the option to bundle in running costs like fuel, servicing, insurance, and registration. When the lease ends, you can choose to:

• Pay the residual amount and own the car outright
• Trade it in for a new vehicle and start a new lease
• Extend the lease term on the same car

It’s a straightforward system that works best for people who want predictable car expenses while maximising their tax savings.

The Key Benefits of a Novated Lease

1. Significant Tax Savings

One of the biggest perks of a novated lease is how much tax you can save. Because your repayments come out of your pre-tax salary, your taxable income is reduced—meaning you pay less tax overall.

But the savings don’t stop there:

• You won’t pay GST on the purchase price of the car (a potential saving of up to $6,334 for the 2024/25 financial year).
• Any running costs included in the lease are also GST-free.
• Your take-home pay is maximised because you’re reducing the portion of your salary that gets taxed.

For many people, these tax advantages make a novated lease a more cost-effective option than a traditional car loan.

2. Huge Savings for EV and Hybrid Buyers

If you’re considering an electric vehicle (EV) or plug-in hybrid (PHEV), a novated lease becomes even more attractive. Under current Australian legislation, these vehicles are exempt from fringe benefits tax (FBT)—a tax that normally applies to employee benefits.

This means that every dollar you spend on your EV lease comes out of your pre-tax salary, making it cheaper to finance an electric vehicle through a novated lease than to buy it outright with cash.

On top of that, you still get all the usual tax perks—no GST on the purchase price, tax savings on running costs, and access to fleet discounts. If you’re looking at switching to an EV, a novated lease could be the best way to do it.

3. Easy Budgeting with Running Costs Included

A fully maintained novated lease lets you bundle your car’s running costs—like fuel, servicing, insurance, and registration—into your regular lease repayment. This means:

• You won’t have to worry about unexpected car expenses.
• You’ll get GST savings on these running costs.
• You’ll have one predictable monthly payment instead of juggling separate bills.

For people who like to keep things simple and stress-free, this feature alone can make a novated lease worth it.

4. Flexibility at the End of the Lease

Unlike a traditional car loan, a novated lease gives you multiple options at the end of your lease term. You can:

• Buy the car by paying off the residual value.
• Trade it in for a new car and start a fresh lease.
• Extend the lease on your current vehicle for a longer term.

If you like upgrading to a new car every few years, this flexibility makes a novated lease a great option.

5. Access to Fleet Discounts

Novated lease providers purchase vehicles in bulk, which means they can negotiate fleet discounts that an individual buyer wouldn’t normally get. This can lead to significant savings on the car’s purchase price, making a novated lease even more cost-effective.

6. You Can Use the Car 100% for Personal Use

A common misconception is that novated leases are only for company cars or vehicles used for work. In reality, you can use the car however you like—it doesn’t need to be driven for work at all. The lease is simply structured through your employer for tax benefits, but you have complete control over how and when you use the vehicle.

Things to Consider Before Getting a Novated Lease

While novated leasing comes with plenty of advantages, it’s not the right choice for everyone. Here are some factors to consider:

1. Residual Payment at the End of the Lease

A novated lease comes with a residual value, which is the final lump sum payment required if you want to own the car outright at the end of the lease. This amount is set at the beginning of the lease and is based on the car’s estimated value at that time.

If you don’t want to make this payment, your other options are to trade in the vehicle or extend the lease.

2. The Lease is Tied to Your Employer

Because the lease is structured through your employer, it depends on you remaining with that company. If you change jobs, you’ll need to either:

• Transfer the lease to your new employer (if they allow it).
• Take over the repayments yourself, just like a standard lease.

If you’re in a secure job, this isn’t an issue—but if you’re planning a career move, it’s worth keeping in mind.

3. You May Have Limited Choice of Lease Provider

Some employers have exclusive partnerships with specific lease providers, meaning you won’t always be able to shop around for the best deal. While you’ll still get tax benefits, some providers may have higher fees or fewer inclusions, so it’s worth reviewing the terms carefully.

Choose Credit One for Your Novated Lease

For many people, a novated lease can be one of the smartest ways to finance a car. Between the tax savings, GST benefits, and easy budgeting, it’s often more cost-effective than buying a car outright or using a traditional car loan. If your employer offers novated leasing and you like the idea of reducing your tax while driving a new or near-new car, it’s definitely worth exploring further.

At Credit One, we specialise in helping people navigate novated leasing to ensure they get the best possible deal. Our experienced and knowledgeable team will guide you through the process and explain all the ins-and-outs and the benefits and drawbacks of a novated lease. Contact us today to speak with a member of the team and find out if a novated lease is the right choice for you!