The Ultimate Guide to Using a Novated Lease Calculator

Novated leasing is one of the most tax-effective ways to finance a car in Australia. But with complex calculations involving residual values, running costs, and tax implications, it can be challenging to understand the true cost.

That’s where a novated lease calculator comes in.

In this comprehensive guide, we’ll cover:

✅ What a novated lease is and how it works
✅ Why using a calculator is essential before signing a lease
✅ Key inputs needed for accurate calculations
✅ How to interpret the results
✅ Pros and cons of novated leasing
✅ Common mistakes to avoid

By the end, you’ll be able to confidently use a novated lease calculator to determine if this financing option is right for you.

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What is a Novated Lease?

A novated lease is a three-way agreement between:

1. You (the employee) – Who selects and uses the vehicle
2. Your employer – Who deducts lease payments from your pre-tax salary
3. A finance company – Who owns the vehicle during the lease term

The key benefit? Significant tax savings because your repayments come from your pre-tax income rather than after-tax dollars.

How Does It Work?

1. You choose a new or used car (under a certain age).
2. A finance company purchases the vehicle and leases it to you.
3. Your employer agrees to make lease payments from your salary before tax is deducted.
4. The lease typically runs for 1-5 years.
5. At the end, you can pay the residual (balloon payment) to own the car outright, refinance, or upgrade to a new lease.

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Why Use a Novated Lease Calculator?

Novated leases involve multiple financial components:

• Vehicle cost – Purchase price of the car
• Lease term – Usually 1-5 years
• Residual value – The balloon payment at the end (set by the ATO)
• Interest rate – Determined by the lender
• Running costs – Fuel, insurance, registration, maintenance
• Tax savings – Based on your marginal tax rate

A novated lease calculator helps you:

✔ Compare leasing vs. buying outright – Is it cheaper in the long run?
✔ Budget accurately – Know your exact pre-tax and post-tax costs.
✔ Optimize lease terms – Should you choose a 3-year or 5-year lease?
✔ Avoid surprises – Understand the residual value you’ll need to pay later.

Without a calculator, you might underestimate the true cost or miss out on tax savings.

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Key Inputs for a Novated Lease Calculator

To get accurate results, you’ll need to enter:

1. Vehicle Price

• The total cost of the car (including GST and dealer fees).
• Some calculators let you add optional extras (e.g., tinting, extended warranty).

2. Lease Term

• Typically 1, 2, 3, 4, or 5 years.
• Shorter terms = higher monthly payments but lower residual.
• Longer terms = lower monthly payments but higher residual.

3. Interest Rate (Finance Rate)

• Usually between 4% – 10%, depending on the lender and your credit score.
• A lower rate significantly reduces total costs.

4. Annual Running Costs

• Estimated yearly expenses for:
• Fuel
• Insurance (comprehensive)
• Registration & CTP
• Maintenance & Servicing
• Tyres
• Some calculators let you input each cost separately.

5. Your Annual Salary & Tax Rate

• The higher your income, the greater the tax savings.
• Marginal tax rates in Australia (2024):
• $0 – $18,200 – 0%
• $18,201 – $45,000 – 19%
• $45,001 – $120,000 – 32.5%
• $120,001 – $180,000 – 37%
• $180,001+ – 45%

6. Residual Value (Balloon Payment)

• Set by the ATO (you can’t negotiate this).
• Depends on lease term:

Lease Term	ATO Residual %
1 Year	65.35%
2 Years	56.15%
3 Years	46.85%
4 Years	37.55%
5 Years	28.25%

• Example: For a $50,000 car on a 3-year lease, the residual is $23,425 (46.85%).

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How to Interpret Calculator Results

A good novated lease calculator will show:

1. Monthly Pre-Tax Cost

• The amount deducted from your salary before tax.
• This includes both the lease payment and running costs.

2. Monthly Post-Tax Cost

• The real cost to you after tax savings.
• Usually 20-40% cheaper than financing a car traditionally.

3. Annual Tax Savings

• How much you save in income tax each year.
• Example: If your pre-tax deduction is $1,500/month and your tax rate is 32.5%, you save $487.50/month ($5,850/year).

4. Residual Value (End of Lease)

• The lump sum you’ll need to pay to own the car outright.
• You can refinance this amount or trade in the vehicle.

5. Total Lease Cost

• The sum of all payments + residual.
• Compare this to the car’s purchase price to see if leasing is worth it.

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Pros & Cons of Novated Leasing

👍 Advantages

✅ Tax savings – Payments come from pre-tax salary.
✅ GST savings – You only pay GST on the financed amount, not the full price.
✅ All running costs included – No surprise expenses.
✅ Flexibility – Upgrade your car every few years.

👎 Disadvantages

❌ You don’t own the car immediately (until you pay the residual).
❌ Early termination fees if you leave your job or cancel the lease.
❌ Higher interest rates than some car loans.
❌ Residual payment risk – If the car’s market value is lower than the residual, you could lose money.

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Common Mistakes to Avoid

🚫 Underestimating Running Costs

• If you input $2,000/year for fuel but actually spend $3,500, your savings will be less than expected.

🚫 Ignoring the Residual Value

• Many people forget about the balloon payment at the end.
• Always factor this into your long-term budget.

🚫 Not Comparing Lenders

• Interest rates vary between providers.
• Get quotes from at least 3 finance companies before committing.

🚫 Choosing the Wrong Lease Term

• A 5-year lease has lower monthly payments but a much higher total cost.
• A 3-year lease may be more cost-effective overall.

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Final Verdict: Is a Novated Lease Worth It?

✅ Best for:
✔ High-income earners (tax savings are greater).
✔ Employees who drive a lot (fuel and maintenance are tax-deductible).
✔ People who like driving newer cars every few years.

❌ Not ideal for:
✖ Low-income earners (tax benefits are minimal).
✖ Those who prefer to own a car long-term.
✖ People with unstable employment (early termination fees apply).

Try Our Free Novated Lease Calculator

Want to see real numbers for your situation? Use our interactive calculator above:

Enter your details and see exactly how much you could save with a novated lease!

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Got Questions?

Have more questions about novated leases? Drop them in the comments, and we’ll help you out! 🚗💨

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