So, you’ve done the research. You’ve compared EV models, calculated your current driving range needs and maybe even shortlisted your favourites. Now comes the next decision, and perhaps the biggest one of all, how to pay for it?
While paying cash or taking out a traditional car loan remain familiar options, novated leasing has become an increasingly popular choice to finance vehicles.
What is a novated lease?
A novated lease is an agreement between you, your employer and a leasing provider. Your employer makes lease payments on your behalf through salary sacrifice, and your leasing provider manages the finance and administration.
From the day you collect the keys, the vehicle is yours to use just as you would if you’d purchased it another way. Whether that’s commuting to work, doing the school run or heading away for the weekend, it’s your car to enjoy.
Before you start comparing repayments or locking in your preferred model, it’s worth understanding exactly how a novated lease works, and what it means for your finances over the life of the agreement.
Here are the key things to consider:
Start with your budget
It’s tempting to jump straight into comparing electric range, charging speeds and features, but before you shortlist vehicles, it’s worth understanding what comfortably fits your budget.
That doesn’t just mean the purchase price. The real cost of any vehicle includes registration, insurance, servicing, tyres, charging, maintenance and finance. These ongoing expenses can add up quickly and are often overlooked when comparing vehicles.
Take two cars with similar purchase prices. One may cost less to insure, service and charge than the other. Over three or five years, the vehicle that looked more expensive upfront could actually end up costing less overall.
A novated lease helps simplify that comparison because many every day running costs can be packaged into one regular payment. Rather than budgeting separately for insurance, servicing, or registration throughout the year, expenses are planned from the beginning, giving you a clearer picture of what your vehicle is likely to cost over the life of the lease.
Depending on the EV you choose and your lease arrangement, you may also benefit from GST savings on running costs, alongside the convenience of having fewer separate bills to manage.
The three terms to understand before you sign
As with all financial products, there’s some jargon you may read when researching a novated lease. We’ve outlined three key terms you’ll probably come across and understanding them now will make the process much clearer in the long run.
- Salary Sacrifice means your lease payments are generally deducted from your salary before income tax is applied.
- Lease Term refers to how long your agreement runs. Many drivers choose somewhere between three and five years, depending on how often they like to change vehicles.
- Residual Value is probably the term that causes the most confusion for first-time novated lease customers. It’s the agreed value of the vehicle at the end of your lease, calculated in accordance with the Australian Tax Office (ATO) guidelines and the applicable lease term. Think of it as the amount remaining once your regular lease payments finish. Rather than paying off the entire value of the car during the lease period, a residual amount remains at the end of the agreement.
When your lease finishes, you generally have several options. You might choose to pay the residual value and keep the vehicle, refinance (subject to finance approval), or trade-in the vehicle towards your next lease or sell it, depending on your circumstances.
The important thing to remember is that a residual value isn’t something to be caught out by. It’s part of how a novated lease is structured, and your leasing provider will explain exactly how it works before you sign your agreement.
Think beyond today’s commute
Before choosing your next vehicle, consider what your driving might look like over the life of the lease, not just the next few months.
Will you continue commuting five days a week? Are weekend road trips becoming more common? Is your family growing? Could you install home charging in the future, if not now?
These are the sorts of questions that can influence everything from the EV you choose to the lease term that suits you best.
Spending a little time thinking ahead can help you choose a vehicle that suits your lifestyle years down the track, not just on the day you collect the keys.
Of course, life doesn’t always go to plan. If your driving habits change over time, some leasing providers, like SG Fleet, can work with you to review your kilometre projections and recalculate your lease where appropriate, helping your budget stay aligned with the way you actually use your vehicle.
What if you change jobs?
It’s one of the most common questions people ask before taking out a novated lease, and understandably so.
Changing employers doesn’t necessarily mean the end of your novated lease. In many cases, your lease can transfer to your new employer if they also offer novated leasing. If they don’t, there are still options available, although financial arrangements may change.
The important thing is knowing what those options are before you commit. A good leasing provider will be able to explain different scenarios upfront, so you understand how your lease could be affected if your circumstances change.
Choosing the right leasing provider matters too
Not all leasing providers offer the same level of support.
Beyond helping you structure your lease, an experienced provider may also have access to the fleet purchasing power that individual buyers typically don’t, helping secure competitive vehicle pricing before tax savings are even considered.
They can also help you compare vehicles, compare running costs, explain current government incentives, like the Electric Car Discount, and guide you through from quote to vehicle delivery, making the process considerably simpler than trying to navigate it on your own.
The smartest first step? Run the numbers
Before deciding on a vehicle, it’s worth finding out what it could actually cost you.
A novated lease calculator can estimate your repayments based on your salary, the vehicle you’re considering and your expected running costs. Instead of comparing purchase price alone, you can compare the total cost of driving different vehicles over the life of the lease.
Sometimes the results are exactly what you’d expect. Sometimes they’re surprisingly different. Either way, you’ll be making your decision with real numbers instead of assumptions.
The bottom line
Choosing your next vehicle is a significant financial decision and how you finance it deserves just as much consideration as the price tag.
A novated lease can offer eligible employees a simpler way to manage vehicle costs while unlocking meaningful tax savings. Rather than focusing solely on purchase price, take the time to understand the total cost of driving, compare your options and ask the questions that matter to you.
Running the numbers is one of the best places to start. From there, an experienced provider like SG Fleet can help you understand your options, compare different vehicles and choose a lease that suits both your budget and the way you drive.
