7 Important Facts Aboutnovated Leasing
One of the more exotic types of car finance, novated leasing is an option that many
potential customers skip over simply because it sounds far too complex for their needs! In fact, novated leasing is one of the most common types of car finance, applicable and available to a significant proportion of people. Today we explore how novated leasing works, with a 'top 7' most important facts.
1.What Is a Novated Lease?
A novated lease differs from an ordinary lease in that there are three parties involved - the lessee (also an employee), the employer (responsible for repayments), and the lender. The word 'novated' refers to a general legal term, where one party in an agreement is replaced with another party - in this case, the lessee is replaced by his employer.
The employer may make the lease payments to the lessor, but they come from an employee's pre-tax income. Novated leases are paid for through salary sacrificing.
2.Can I Access a Novated Lease?
You can only choose a novated car lease to finance your vehicle if your employer offers this option as part of your employment package. Generally, salary packaging of things like car financing is not a one-off arrangement for an employer.
3.What Happens If I Leave My Job?
If an employee leaves the employer which is party to a novated lease, the debt defaults to the employee. It is the employee's car - it is just that while you are with a particular employer, they will manage the payments through the employee's pre-tax income and cover the Fringe Benefits Tax obligations.
4.What Are the Advantages of Novated Leasing for Employees?
Novated leases allow an employee to pay for their vehicle with pre-tax dollars. The employer covers Fringe Benefits Tax payments, which can be less than the amount saved in income tax, creating a net saving!
If your employer has many employees with novated leases, they may have access to volume discounts for salary sacrificed cars, potentially increasing savings substantially.
5.What Are the Advantages of Novated Leasing for Employers?
Novated car leasing has even more benefits to the employer. Firstly, it is far more cost effective than operating an entire fleet of vehicles. Because the employee has ultimate responsibility for vehicle payments the company does not assume the risk of owning the vehicle nor do they have unused cars when an employee leaves or is made redundant. Administration time and costs are reduced compared to operating a company fleet. Another subtle benefit is the ability to attract more valuable employees with a more attractive employment package!
6.Are There Other Types of Novated Lease?
Yes. In a fully maintained novated lease, the running costs are also packaged with the vehicle. In a fully maintained novated operating lease, the running costs are packaged with the vehicle, plus the residual value risk is assumed by the lessor. These are often maintained by specialist car leasing administrative companies.
7.Lease Maintenance Outsourcing May Not Be Cost Effective
Fully maintained novated leases, as well as fully maintained novated operating leases, are often managed by third-party administrators. This is convenient for businesses and employees - however, this convenience comes at a price! The management fees and charges may outweigh the cost of training and paying an employee to perform that work in-house.
by: belindadarling
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