Used Car 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 advantages and disadvantages 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 in my experience.

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.

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 $6,191 depending on the vehicle's price (for the FY2023/24 financial year), so this can make a big difference.

Let’s look at an example.

You see two identical models for sale. One 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.

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.

Here are the main benefits of a novated lease versus a car loan as a way of financing a used car:

• Save on GST on the purchase price if you buy through a used car dealer
• Make payments from pre-tax salary to save on income tax (you're 'salary sacrificing' the car)
• Cover car running costs (which can be higher on a used car) as part of your novated lease deal to save more in income tax and GST
• If it’s a used electric vehicle or plug-in hybrid with a value below the luxury car tax threshold, the vehicle lease may be exempt from fringe benefits tax (FBT) depending on when it was first purchased
• Compared to financing a new car, 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.

And here are some of the possible drawbacks of a novated lease for a used car:

• You’ll need to make a residual payment at the end of the lease to own the car outright
• You may need to pay fringe benefits tax
• Your repayments are linked to your salary which can mean things get more complicated if you move jobs or take unpaid leave
• For things like repairs and maintenance, you may need to use the novated lease company’s preferred provider rather than the ones that’s most convenient for you.

1. Ford Ranger XL (average used price $26,516.24)
2. Toyota Hilux SR ($32,351.19)
3. Holden Colorado LS ($24,889.77)
4. Toyota RAV4 GX ($24,126.26)
5. Toyota Camry Ascent ($21,046.82)
6. Nissan X-TRAIL ST ($20,736)
7. Toyota Corolla Ascent ($17,803)
8. Isuzu D-MAX SX ($26,490.51)
9. Toyota Kluger GX ($33,000.81)
10. Toyota Hiace ($31,889.90)

Source: Datium Insights, February 2023