How to get a used car on a novated lease

Q: Can I finance a used car with a novated lease?

The good news is 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 novated lease process. But there are a few key points you should think about before you decide if novating a used car is going to be your best finance option.

Q: Can I novate a used car bought from a private seller?

Most novated lease providers will facilitate a private sale. 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).

Q: What happens with my novated lease if there are issues with the vehicle?

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); or paying for them from your after-tax salary or savings (without a GST discount on the repairs).

Novated lease benefits

GST saving on vehicle purchase price (up to $6,334)

Pay for car and running costs with pre-tax salary

A novated lease company does all the set up for you

EV novated leases are exempt from FBT

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 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.

What is the maximum novated lease used car age?

With a used car novated lease, you need to think about how old the vehicle will be at the end of the lease term.

The maximum end-of-lease age is generally 15 years (with some providers the max age is 12).

Most novated lease terms are 5 years, although they can be shorter.

So the maximum current age of the car you’re buying will generally be 10 years.

Can I novate a used car bought 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 FY2024/25 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.

	Dealer	Private sale
Purchase price	$30,000	$28,000
Novated lease GST discount	-$2,727	$0
Cost to you	$27,273	$28,000

What happens with my novated lease if there are 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 salary or savings (without a GST discount on the repairs)

Either way, it’s in your interest to buy a used car that’s in good condition and unlikely to need extensive repairs during the lease.

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 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

What are the drawbacks of a used car novated lease?

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.