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Are Novated Leases Better for a New or an Old Car?

Car LeaseNovated leases are exceedingly popular because they allow people to lease a vehicle by using a salary package, which helps reduce taxes and save you money on income tax.

Novated leases are a tripartite or three-way agreement between the lease provider, the employee and the employer. The lease can be determined using a finance lease calculator. Many Australian novated leasing companies include a calculator on their website.

The Question of Old vs. New

A novated lease typically allows employees to take full possession of the car at the end of the lease, or a ‘residual’. They can pay the residual with their own money or sell the car and use the proceeds to pay for it then.

While most leasing companies offer new cars for leasing, some offer used cars as well. Used vehicles can be as old as nine years, and it is up to the employee to decide what type of vehicle would suit them.

Some may consider getting a used car because it can be more cost-effective. This way, it is possible to get a more expensive car that is only slightly used, instead of getting a new car of a less expensive model.

On the other hand, a new vehicle has zero depreciation and is less likely to have problems down the road. It can be difficult to decide whether a new or an old one is better.

A New Car May Be Best for Novated Leases

Typically, a new car is better for novated leasing than a used car. This is because a car’s value depreciates over time. A car’s value drops by 20% as soon as you drive away with it. This is because used cars can have scratches, dents or other problems that may eventually affect the selling price of the vehicle.

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While it can be tempting to get a used car instead of a new one to save a little extra money, it can be problematic if you are planning to sell the car at the end of your lease. A car that has already depreciated will have depreciated even further by then and you may not be able to get the price you need to pay off the residual. Choose a new vehicle for your novated lease and enjoy driving a brand new car instead.

  • Posted on November 22, 2016