Pros and cons of car leasing.

[LS1SS]

Im starting a new job where I have been advised to junk my clunker and lease a new car to lower the tax a tad,could any one in the know advise me on the good and the bad on car leasing?

[HEKYEH]

There are a few types of leasing. The two most common seem to be:

Hire Purchase
Novated Lease

Hire purchase is what I have done. I pay a monthly leasing fee over a 5 yr term. At the end of the 5 yr term, I have a 40% balloon payment which I need to pay out or refinance. So this means I'll sell the car and make up any difference in that price. I pay for all of my own servicing and petrol. I don't have any minimum amount of km's to drive each year.

Novated Lease (through someone like LeasePlan), is where you pay a monthly fee which is calculated to include an estimate of how many km's you will drive. Your fuel is then included in this monthly fee and servicing is generally included too. This means you will pay a higher monthly fee to the leasing company - but you essentially get "more" included. If you nominate to drive 20,000km, but only drive 15,000km, you will be hit with a Fringe Benefits Tax penalty, from what I know...

Perhaps consult with an accountant/financial consultant as everyone's situation is different. My comments here are not intended as advice, just my own personal experience.

[HHVYSS]

There are a few types of leasing. The two most common seem to be:

Hire Purchase
Novated Lease

Hire purchase is what I have done. I pay a monthly leasing fee over a 5 yr term. At the end of the 5 yr term, I have a 40% balloon payment which I need to pay out or refinance. So this means I'll sell the car and make up any difference in that price. I pay for all of my own servicing and petrol. I don't have any minimum amount of km's to drive each year.

Novated Lease (through someone like LeasePlan), is where you pay a monthly fee which is calculated to include an estimate of how many km's you will drive. Your fuel is then included in this monthly fee and servicing is generally included too. This means you will pay a higher monthly fee to the leasing company - but you essentially get "more" included. If you nominate to drive 20,000km, but only drive 15,000km, you will be hit with a Fringe Benefits Tax penalty, from what I know...

Perhaps consult with an accountant/financial consultant as everyone's situation is different. My comments here are not intended as advice, just my own personal experience.

You will wear the Fringe Benefits Tax regardless the amount the kms you do. However the more kms you do the lower the FBT cost (I think that was point you were making). Even including the FBT cost in the equation you typically will be ahead if compared to owning the car outright. This is because the lease and running costs are funded from your pre-tax dollars. As was recommended speak to your accountant or use one of the many novated lease calculators out there on the web to crunch the numbers.

[TigerVXSS]

NLC or any other of many novated lease companies have calculators to work the financials out. There are sweet spots in how many km you do per year which may mean going for a long drive the weekend before The FBT year ticks over. :)

A major con is that you (generally) can't modify it in any way.

[tmob]

i took a novated lease for a couple of reasons..i didn't see a single particular benefit in doing so, more a combination of small benefits that suited me.

For me it throws a tax benefit of around 5k per year.

If the company i work for enters financial difficulty at any time, the car is secure as its not in the company name. i've heard of people salary sacrificing $x per week for a car, then when business goes bad and the repo men come along (so to speak), they loose the car that they've been sacrificing wage for each week as the car is owned or leased by the company.

If I decide to change employers, I can take the car & lease with me.

Excuse the arrogance - I work long hours, and I'm good at what i do. my time is far better spent concentrating on what i do best, rather than on the phone organising insurance, paying registration, organising services, paying fuel accounts, maintaining car loans etc. these are all small trivial things, but why not let someone else do it for me.

It came down to convenience more than anything. Buying through a private fleet car broker also saved me a shtload of time at the beginning too. Told them what i wanted, and they came back to me with the right car at the right price.

as for mods, according to my agreement, i can make any mods at my expense, but they become 'part of the car' ie the leasing mob owns any parts etc. have to notify insurance obviously, and if they in some way lower the value of the car, when it comes time to sell at the end of lease, i'm responsible for the shortfall.

as everyone else has said, have a chat with a finance broker / your accountant to get a clear understanding of how it will effect you financially. i spent a good couple of hours on the phone to the leasing agent, making sure they explained every detail.

[ls3r8]

If you nominate to drive 20,000km, but only drive 15,000km, you will be hit with a Fringe Benefits Tax penalty, from what I know...

Sorta. There are km ranges that you fall into, and you need to make sure you fall into the one you nominate. 0-15000km, 15000-25000, 25000-40000 and 40000+. The tax benefits are greater in each category as you go up, but you must remember that as you increase your km travelled you will also increase the servicing and consumables costs.

For me the extra fuel, tyres, servicing etc would negate the tax benefits of moving into the next bracket up. Plus I would have to go and waste time putting thousands of extra km on my car, which also then hurts resale at the end of the lease.

[Thunderbird-1]

Hi ls1ss... Not sure what kind of job your into or how this suits you but I'm a self employed sub contractor... My accountant suggested best for me was a chattle mortgage, wouldn't have a clue how it's different from hire purchase lease except Im about to get the gst straight back in the sky rocket in one lump sum rather than smaller deductions along the way.. My advice would be to get some advice from your/a accountant, most financial companys from my experience don't really care what you sign up for as long as you sign up so they probably won't give you what's best for you

Cheers

Tim

[moconn20]

You will wear the Fringe Benefits Tax regardless the amount the kms you do.

Not if you lease and you work for the ambulance service of NSW hehe. FBT exempt for the win

[conchie]

I’m on my 3rd lease so I’ve been through this a few times before- although I’ve only done fully maintained novated leases so if that’s not what you’re looking at the rest of the post is going to be pretty useless.
The term ‘fully maintained’ means that a lease company (Orix, LeasePlan etc) prepare a budget for you including lease payment, insurance, servicing, rego insurance etc, and spread that cost as monthly payments for your requested term (usually 36 or 48 months). At the end of the term the books are balanced and you either pay, or get a cheque for the difference between the budget and the actual costs, payout the lease residual, then you own the car. Fringe benefits tax is calculated as a percentage (variable on the amount of kilometres you do in a year) of the original value of the car. You can negate your fringe benefits tax liability by splitting you lease payments between-pre tax and post tax payments- the post tax amount needs to be the value of the the fringe benefits tax liability (this is called the ‘employee contribution method’). The term ‘notated’ means that the company you work for leases the car, but they transfer all the responsibility for the lease to the employee. This means that if you quit your job or write the car off within the lease term you are up for the early settlement costs which are usually the lease residual + all outstanding lease payment, this is very expensive in the early part of the lease.
As such, a fully maintained lease can be cost effective if,
a) you can’t already claim a significant proportion of your kms
If you already claim a lot of kms for work related travel using a log book or similar, you may be better off staying with that as you get the same reduction in you PAYG tax, and aren’t liable for Fringe Benefits tax.
b)you do enough kms to make it worthwhile. If you do 15000-24999 kms a year the FBT rate is 20% of the value of the car (ie car worth $45,000, your FBT liability is $9000 each year) but if you do 25000-40000 km per year the FBT rate is 11% (ie car worth $45,000, your FBT liability is $4950 each year). A single km under the threshold can cost big bucks- We often have a rush of emails around the office in March (March 31 is end of FBT year) asking if people want to borrow X car to put kms on the clock for the owner.

Also as previously quoted...
consult with an accountant. My comments here are not intended as advice, just my own personal experience.

[nthnbeachesguy]

Going through this whole thing with a mate at the moment and I have been through it twice myself.. One big question is do you use the car for work? personally if you want to go down the novated lease option I would steer clear of Leaseplan, on paper they appear to be a pack of thieves. When i went through this two years ago I investigated a few different leasing companies before being told by HR that we had to use leaseplan. Unfortunately for comparable car and kms they were about $3-4000 more expensive a year than some other quotes I had.

In the end I went back down the CHP route, no upfront tax savings but as I do 90% of my driving for work I claim back 90% of my running costs as well as depreciation. When looking into leasing I imagined doing about 25-30,000kms, the true figure over the last two years has been closer to 40,000. All this considered I come out ahead every year through a CHP rather than a lease with leaseplan. I broke down the numbers the other day, my car costs me $431 a week, CHP and running costs out of my pocket, after my tax return that comes down to $239.

Doing the same car and kms Leaseplan wants $424 a week, I'm paying on average $7 a week more to run my car but come tax time I get a big lump sum payment.

My mate is a another story, he does not use his car for work but he does work for a govt dept so he gets the GST waived. In his instance he cannot get a CHP as the car will not be for business use. He does however have access to Leaseplan and also a credit union who will allow him to lease only the purchase price of the vehicle and the running costs are up to him. That seems to be the best way for him to go after some number crunching of the various options he has, the credit union will also allow him to lease a 2nd hand car as long as the vehicle will be under 10 years old at the end of the lease.

[COSMOS]

i have leased two cars - a VY II SS and a Vectra CDXi. On the SS I exited 16mths early on a three year lease. As I was under on the running costs I was only in it for about 3k on top of what I got to see the car (30k).

On the CDXi I ran the entire term of the lease and still had to pay almost 5k on top of the sale price. Just bad luck I suppose.

Now with the next car which was 40k on the road I borrowed 25k as a mortgage with 4yr fixed interest. I paid 632 a month on that loan and about another 300 (average) a month to run it which includes fuel, rego and insurance. I have a separate visa card for the running costs and the running costs only. I also keep a log book.

As we have another company car which is fully provided for I only drive my car for work to and from the office 2 days a week or to meetings. My log book suggest business usage of between 80-87% PA.

So I take the loan statements which show interest, the visa statements showing operating costs and the depreciation to the accountant. The first year I got a small return but last year I sold the car for 27k after 14mths ownership and ended up with 13k as a tax refund which funded a large chunk of the 18k changeover for the current car.

For me I prefer the way i do it now because there are no minimum kilometres to do each year which = less wear and tear and costs and there is no balloon payment to cover in a big chunk at the end in a depressed used car market.

I have been considering leasing the next car in Oct/Nov but will likely only do around 15-20 thousand kays so it wont be worth it for FBT.

Like everyone else says - check with an accountant. For me its about how much risk i can live with and the risks associated with a novated lease are too much for me.

[BOOGER]

Going through this whole thing with a mate at the moment and I have been through it twice myself.. One big question is do you use the car for work? personally if you want to go down the novated lease option I would steer clear of Leaseplan, on paper they appear to be a pack of thieves. When i went through this two years ago I investigated a few different leasing companies before being told by HR that we had to use leaseplan. Unfortunately for comparable car and kms they were about $3-4000 more expensive a year than some other quotes I had.

In the end I went back down the CHP route, no upfront tax savings but as I do 90% of my driving for work I claim back 90% of my running costs as well as depreciation. When looking into leasing I imagined doing about 25-30,000kms, the true figure over the last two years has been closer to 40,000. All this considered I come out ahead every year through a CHP rather than a lease with leaseplan. I broke down the numbers the other day, my car costs me $431 a week, CHP and running costs out of my pocket, after my tax return that comes down to $239.

Doing the same car and kms Leaseplan wants $424 a week, I'm paying on average $7 a week more to run my car but come tax time I get a big lump sum payment.

My mate is a another story, he does not use his car for work but he does work for a govt dept so he gets the GST waived. In his instance he cannot get a CHP as the car will not be for business use. He does however have access to Leaseplan and also a credit union who will allow him to lease only the purchase price of the vehicle and the running costs are up to him. That seems to be the best way for him to go after some number crunching of the various options he has, the credit union will also allow him to lease a 2nd hand car as long as the vehicle will be under 10 years old at the end of the lease.

I'm on my second car through Leasplan and as far as their pricing goes you can get your own quote, you don't need to use the Leaseplan supplied quote. They'll probably tell you that you can't do it but take the Leaseplan quote to any dealer you want and tell them to better it, then send that to Leaseplan and tell them this is the quote you want to use.

[nthnbeachesguy]

I'm on my second car through Leasplan and as far as their pricing goes you can get your own quote, you don't need to use the Leaseplan supplied quote. They'll probably tell you that you can't do it but take the Leaseplan quote to any dealer you want and tell them to better it, then send that to Leaseplan and tell them this is the quote you want to use.

I am not saying Leaseplans quote was $3-4000 a year more expensive for the car price alone, I mean that the yearly lease payment was $3-4000 more expensive than anywhere else I looked. I showed the HR Dept the differences on apples for apples quotes from Leaseplan and others and they said they would look into it but never heard anything. Leaseplan at a guess would have 1000 vehicles if not more with my company (5500 employees nationally), they would also have a big fleet dicount pricing structure and yet they still manage to be that expensive? Just glad I investigated all my options rather than just blindly going with them.

[BOOGER]

I am not saying Leaseplans quote was $3-4000 a year more expensive for the car price alone, I mean that the yearly lease payment was $3-4000 more expensive than anywhere else I looked. I showed the HR Dept the differences on apples for apples quotes from Leaseplan and others and they said they would look into it but never heard anything. Leaseplan at a guess would have 1000 vehicles if not more with my company (5500 employees nationally), they would also have a big fleet dicount pricing structure and yet they still manage to be that expensive? Just glad I investigated all my options rather than just blindly going with them.

Yep no worries I follow what you mean now but I would imagine the difference in price would be because of the running costs and not the lease on the vehicle unless the interest rate Leaseplan charge is above the other providers because FBT liability and residual values are all set and can't be altered. For instance I nominated 25,000km per year obviously for a V8. Leaseplan take over $650 per month for fuel, I only use about $350 a month on fuel. So yes my expenses being taken by Leaseplan are high but that money is just sitting there waiting to be used and if it doesn't they give it back at the end of the lease.

Just one other thing. The reason I say to shop around for your own quote with leaseplan is that their discount pricing structure isn't actually all that good because they have a prefered dealer network as opposed to a cheapest dealer network. I got a quote on an SSV sedan back when holden were offering those really massive discounts but the quote still came in at $52,000, my mate just bought an SSV using his own quote and taking it to Leaseplan. He got it for $42,000 with a couple of grands worth of options.

[EXCESSV]

i have just finished my 3 year lease on my SSV with SG Fleet and it was the best thing for me to do at the time of buying a new car. I paid the balloon payment and now own the car solely.

would i do it again? yep if its of the same benefit as the last one was.

It really depends on the individual and alot of factors come into it so best to speak to an accountant and see what the benefits are for your specific situation and which method is the best. then make a decision.

[RACCIRACOON]

Had a novated lease on a brand new Prado for the wife few years back. Unless you do 25,000km a year not worth it. Also have to be able to afford to pay for everything twice and then claim back the cost of the item.

[EXCESSV]

Had a novated lease on a brand new Prado for the wife few years back. Unless you do 25,000km a year not worth it. Also have to be able to afford to pay for everything twice and then claim back the cost of the item.yes 25,001km a year is a must to ensure its worth it and you must meet it to avoid FBT.

but dont know what you mean pay for everything twice. with the company i used i had fuel cards, a tyre card for Bob jane, fill out a form with details and they pay your insurance and rego on your behalf. also when getting serviced i would give mechanic the number for the lease company claims department and they would get authorisation to service/repair and would charge my lease company directly.

i also had the option of paying up front myself then claiming back to the lease company. i got the full amount back within 2-3working days of the claim being faxed/emailed to them.

[BOOGER]

It can still be worth it if you do under 25,000km but you definately need to look at the figures a lot closer. Another way I look at it is that I'm prepared to pay a little more for the convenience of not having to worry about stumping up the money for things like rego, insurance, servicing, fuel. Not to mention all those things are cheaper as well.

[RACCIRACOON]

Fuel cards went straight in the bin - Have to pay account fee's as well as being limited to what company's could be used. Also cannot use discounts with fuel cards and 4c off $1.20+ for 160lt every 2 weeks adds up.
As for other charges where all done manually by me. Helped me save as i would only claim once i had 9 recipts. Rego/Insurance and tyres equals big pay day

[EXCESSV]

Fuel cards went straight in the bin - Have to pay account fee's as well as being limited to what company's could be used. Also cannot use discounts with fuel cards and 4c off $1.20+ for 160lt every 2 weeks adds up.
As for other charges where all done manually by me. Helped me save as i would only claim once i had 9 recipts. Rego/Insurance and tyres equals big pay dayno account fees for my fuel cards and i could use whatever fuel i wanted. i had BP and Caltex cards. if i wanted a shell card was a account fee of $1.50 a month to have it

what do you mean by other charges where done manually by you?? :confused:
what do you mean by reog/insurance and tyres equals big pay day? :confused: