Can I finance a used car with a novated lease?
Yes, you can use a novated lease to finance a used car, just like you would if you were buying a new car. The pros and cons are mostly the same. So is the process for getting your lease established.
In fact, taking out a novated lease on a used car is quite a common option for many Australians.
Some people just don’t like the idea of buying a brand new car. Or they have a tighter budget and a used car makes sense. Long wait times for new cars are also a factor for a lot of people.
But there are a few key points you should think about before you decide if novating a used car is going to be worth it.
How a used car novated lease works
Leasing a used car through a novated lease works much like leasing a new vehicle, but there are some subtle differences to be aware of. Here’s a step-by-step guide:
Find a used car
Start by choosing a used car, either from a dealer or a private seller. Some novated lease providers can assist with finding a vehicle through their partnerships with dealerships, taking some of the legwork off your plate.
Apply for a novated lease
Contact a novated lease provider and submit an application for the car you have in mind. They’ll guide you through your options and provide a high-level overview of the lease structure and costs involved.
Lease approval and vehicle purchase
Once your application is approved and the car meets the provider’s criteria, the lease company’s financier buys the vehicle on your behalf and sets up the lease in your name.
Your salary deductions cover payments
Your employer handles automatic deductions from your salary each pay cycle to cover lease payments. These deductions often include running costs such as fuel or charging, insurance, registration/CTP, servicing and tyres, making budgeting simple.
What’s the maximum age of a used car you can lease?
With a used car novated lease, you need to think about how old the vehicle will be at the end of the lease term. Most providers set a maximum age of 12 years, though some allow up to 15 years, measured from the car’s manufacture date rather than the purchase date.
Most novated lease terms are five years, although they can be shorter.
So the maximum current age of the car you’re buying will generally be eight to 10 years.
Benefits of a novated lease for a second-hand car
Here are the main advantages of a novated lease versus a car loan as a way of financing a used car:
Upfront savings with GST
If the car is purchased from a dealership, you can claim a GST discount on the purchase price – up to $6,334 for the 2025-26 financial year. Private sellers are typically not GST-registered, so no GST is payable in those cases.
Tax and GST benefits
A portion (or all) of your lease payments are made from your pre-tax salary, reducing your taxable income and lowering your tax bill (aka salary sacrificing the car). On top of that, GST savings also apply to running costs as part of your novated lease deal, regardless of whether you buy from a dealer or a private seller.
Further savings with EVs
If it’s a used electric vehicle with a value below the luxury car tax threshold, the lease may be exempt from fringe benefits tax (FBT) depending on when it was first purchased.
More economical choice
Compared to financing a new vehicle, a used car novated lease is a more affordable option if you’re trying to keep costs low or if you’re applying with bad credit.
Here are 10 of the best-selling used cars in Australia, according to CarExpert:
- Ford Ranger (82,448)
- Toyota Corolla (61,745)
- Hyundai i30 (48,907)
- Toyota Camry (44,525)
- Volkswagen Golf (39,447)
- Toyota HiLux (72,015)
- Mazda 3 (52,194)
- Mitsubishi Triton (44,894)
- Nissan Navara (39,692)
- Toyota RAV4 (38,108)
Drawbacks of a novated lease for a second-hand car
Below are some of the possible disadvantages of a novated lease for a used car:
Paying the residual value
At the end of the lease, you’ll need to pay the residual value if you want to own the car outright. This lump sum can come as a shock, so it’s important to plan ahead and ensure it fits your budget.
Fringe benefits tax may apply
Depending on your circumstances and the value of the car, your novated lease may be subject to FBT. This is a tax on certain benefits offered by employers to employees, including salary packaging. If FBT applies, it reduces the overall tax saving on a novated lease.
Complications when changing jobs
Because lease repayments are linked to your salary, moving to a new employer or taking unpaid leave can complicate the arrangement. You may need to renegotiate the lease or continue payments independently until a new setup is arranged.
Restricted options for servicing
Some novated lease agreements require you to use the lease company’s preferred service providers for maintenance and repairs. This may not always be the most convenient option, particularly if you have a trusted local mechanic or dealership you prefer.
Can I novate a used car purchased from a private seller?
Yes you can. Most novated lease companies will facilitate a private sale (the other option being a private sale car loan). They’ll buy the car on your behalf and then you’ll make payments on it from your salary just like you would with a novated lease for a new car.
The main difference with a novated lease on a private sale is the GST (goods and services tax).
Private sellers generally don’t need to charge GST, so you won’t make a saving on the sale price like you would if you were buying a used car from a dealer through a novated lease.
Of course, there won't be a GST saving either way if you opt for a used car loan over novated leasing.
The maximum GST saving is $6,334 depending on the vehicle's price (for the FY2025/26 financial year), so this can make a big difference.
Novated lease used car GST example: Dealer vs private sale
Let's imagine there are two identical models for sale. One used car from a dealer and one from a private seller. The private sale might look cheaper on the face of it, but it's worth factoring in the GST saving on the dealer price...
Vehicle purchase price | |
Dealer | $30,000 |
Private sale | $28,000 |
Novated lease GST discount | |
Dealer | -$2,727 |
Private sale | $0 |
Cost to you | |
Dealer | $27,273 |
Private sale | $28,000 |
Saving | |
Dealer | $727 |
Private sale | $0 |
| Dealer | Private sale | |
|---|---|---|
Vehicle purchase price | $30,000 | $28,000 |
Novated lease GST discount | -$2,727 | $0 |
Cost to you | $27,273 | $28,000 |
Saving | $727 | $0 |
You'll still get GST savings on ongoing car running costs with a fully-maintained novated lease whether you buy the used car privately or through a dealer.
What happens with my novated lease if there issues with the vehicle?
Buying a used car generally means higher maintenance and repair costs. After all, the car may no longer be covered by a warranty and capped-price servicing.
To reduce risk on a used car novated lease, it’s usually a requirement to have the vehicle checked by an independent mechanic before you can enter into the agreement.
You’ll generally also make contributions from your salary to cover ongoing servicing and repairs. That's in addition to the standard costs you can include, like comprehensive car insurance, registration and CTP.
The novated lease provider will help you estimate a suitable budget for these based on the age and condition of the car.
But if the repair costs exceed the lease budget, it will be your responsibility to cover these.
You can cover extra repair costs either by:
- Increasing the lease contributions you make from your salary (with a GST saving).
- Paying for them from your after-tax income or savings (without a GST discount on the repairs).
Either way, it’s in your best interest to buy a used car that’s in good condition and unlikely to need extensive repairs during the lease.
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