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The 4 Disadvantages of a Novated Lease

Written by

Shaun McGowan

A novated lease can be one of the most cost-effective ways to obtain a car under the right circumstances.

While it’s essential that you are employed and paid a salary to qualify for a novated lease, you’ll need to be aware of its disadvantages to make sure it’s right for you.

1. Residual Values

A residual on a novated lease is a lump-sum amount calculated at the beginning of the lease and repaid as a final payment.

Shorter-term leases will have higher residuals, as the car is newer and retains higher value - a 1-year lease may have up to 65% of the car’s value as a residual.

At the end of your term, you will have to repay the residual amount if you want to take full ownership of the car.

2. If you leave your employment, you need to take your car with you

A novated lease is only used by employees, which means the lease agreement is tied to the employee, not the employer.

This means that if you leave your job with a novated lease, you’ll need to make sure your next employer agrees to facilitate the agreement as well.

If you leave your job with a novated lease, the car will be ‘de-novated’ and you will make payments as you would with a standard lease until you are employed and paid a salary again.

Once you’ve found a new job and a new employer who agrees to a novated lease, you will be able to ‘re-novate’ your lease and continue making payments as you did in your previous job.

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3. Buying privately doesn’t give GST savings

A novated lease can be used to acquire a vehicle without paying GST on the initial purchase price. This is one of the only ways that you can acquire a personal vehicle without paying GST - but it’s only available for cars through a registered dealer.

This means, if you’re buying privately, you won’t get those GST savings, and you may as well consider other forms of vehicle finance which may be more suitable.

4. You can only use a novated lease if you are paid a salary

Lastly, if you own your own business, you will need to pay yourself a salary from the business to qualify for a novated lease - if you do not, you will have to consider other forms of finance such as a chattel mortgage.

About the Author

Shaun McGowan from



Shaun McGowan

Shaun is determined to help people pay as little as possible for financial products, through education and world class technology. Before Money he co-founded Fleet Choice, a novated lease company that Eclipx (ASX:ECX) acquired.